Reward smart energy use

In August 2012, Philadelphia passed innovative legislation requiring large commercial property owners to measure their buildings' energy performance, compare it with that of similar buildings, and disclose that performance to the city. That information is due from building owners for the first time on Oct. 31 and, after a trial year, will be regularly reported to the public.

There are several reasons for Philadelphia, New York, and other smart cities to implement these so-called benchmarking and disclosure laws.

First, raising awareness often requires a mandate to measure. Just as mandatory labeling in restaurants informs people about hidden calorie differences that often surprise them, measuring energy use informs owners about hidden waste in their buildings.

Second, raising awareness often requires a mandate to compare. For most of us, a measure of energy use is hard to evaluate. Is 100 kilowatts a lot or a little? And does that much consumption mean the same thing in my building as in yours?

In order to make such comparisons, all building owners must make measurements in the same way and must share the results to construct a meaningful benchmark. The more sharing, the better the benchmark.

Third, raising awareness often requires a mandate to disclose. All that measurement and benchmarking works to the benefit of building owners, but, when those owners become sellers, that information isn't necessarily public knowledge. People looking to purchase or rent space in buildings don't have access to that information. Similarly, car makers don't volunteer to label their miles per gallon on every vehicle; they are required to do it, so that energy performance can be part of a buyer's comparison shopping.

There is good reason to believe that a mandate to measure, compare, and disclose the energy performance of commercial buildings will improve the market with more accurate pricing: Total cost of ownership (or renting) will be reflected in prices that make energy-efficient buildings more valuable and make poor energy performers less valuable.

But there is also good reason to believe that disclosure alone will not make perfect the market for commercial buildings. Owners of high-performing buildings will not be rewarded for their investments until buildings are sold or leases are renewed. And owners of low-performing buildings will need help paying for things to improve their buildings.

In addition, there are benefits we all share from improved building energy performance that will never be sufficiently rewarded in the private market. These benefits include reduced strain (and increased reliability) of the generation and distribution capacity of the power sector, reduced pollution from the power being wasted by poorly performing buildings, and so on (nationally, buildings account for 41 percent of U.S. energy consumption).

To fully capture these private and shared benefits, Philadelphia should follow its innovative benchmarks and disclosure ordinance with a new incentive for energy performance in the real property tax. There are a number of ways this can be implemented.

The most compelling options are revenue-neutral, raising no more or less money than before. Instead, the tax incentive would shift who pays: less from owners of energy-efficient buildings, and more from owners of energy wasters. This idea, often called a "fee-bate," has been attempted in Portland, Ore., to incentivize energy efficiency in buildings, but is most often discussed in relation to energy-efficient vehicles.

This would not be a penalty on the energy wasters. Rather, coming on the shoulders of benchmarking and disclosure, it would provide owners of low-performing buildings with a predictable and securable way to reduce their tax bill by improving their buildings.

When combined with reduced operating costs (and possibly with methods of low-cost financing based on those reduced operating costs, such as on-bill repayment), this tax incentive can provide property owners with a path forward to improve their building performance and that of Philadelphia's building stock as a whole. All of which would help us become a more competitive and sustainable business location.