Real Estate

Capturing the value of energy efficiency in buildings.

Improving the performance of new and existing buildings is an integral part of any global warming solutions strategy. But even though improving building efficiency can yield positive returns on investment, a range of market barriers and market failures are preventing businesses from capturing savings from energy efficiency investment. Building owners, for example, lack incentive to invest in energy efficiency when the savings are captured by tenants. And even those who do stand to benefit directly from efficiency still face obstacles in accessing the information they need to guide their investment decisions and lack the time to gather and assess it. Utilities are encouraged to promote energy efficiency, yet reduced energy use translates to reduced income for the utility -- a prime example of a market failure.

The Center for Market Innovation is working with industry leaders and local, state and federal governments to accelerate the entry of clean, efficient energy technology and cost-effective energy solutions for buildings into the marketplace. By collaborating with industry leaders, we aim to ensure that government policy drives business innovation and improvements and removes barriers that prevent the United States from realizing the full economic and environmental potential of these solutions.

One market barrier the center is currently addressing is the split incentive for energy efficiency in the real estate sector. In many cases, cost savings from buying energy-efficient heating or cooling equipment for buildings goes directly to the tenant, who pays the electric bill, and not to the owner who made the investment. To help address this market barrier, NRDC supported the creation of the LEED green building rating system, which certifies buildings that meet a set of efficiency standards and other green measures. LEED-certified buildings are often able to command a premium in rent and resale value compared with noncertified buildings. By establishing an industry-recognized and trusted system to certify environmentally superior buildings, we have helped create new market opportunities to benefit from and capture the value from increased efficiency in buildings.

CB Richard Ellis (CBRE) is the world’s largest commercial real estate company. We are working with CBRE to develop strategies to expand and benefit from energy-saving practices throughout the vast majority of the 1.7 billion square feet of building space it manages around the globe. The company itself announced a goal to become carbon neutral by 2010.