I will gladly pay you Tuesday for efficiency today

Two announcements in the last couple of weeks peaked the interest of the energy and environmental community in Chicago. A new ordinance seeks to require buildings over 50,000 square feet to benchmark their energy data, and certify it through a third-party system. The second announcement hopes to make easier a previously required requirement that residential property sales include information on the energy use of the property prior to sale. According to an article in the Chicago Tribune,

"Long term, the hope of the city and CNT Energy is that current homeowners will work to make their homes more energy efficient, and when it comes time to sell, more marketable to a 'green' consumer who is increasingly aware of energy conservation. That aligns with Mayor Rahm Emanuel's efforts to shrink the energy usage of Chicago's dated housing stock."

Both initiatives count on people paying a premium for efficient buildings either because of the cache of owning one, or the added economic value that comes from reduced energy prices.  Although Chicago follows Boston and New York into the energy benchmarking arena, neither implemented it so long ago that real data exists.  Chicago showed leadership by implementing energy information in residential real estate, so even less data can inform us as to whether that will effectively lower energy use.

In an article in the journal Applied Energy, researchers in Europe looked at the complex relationship among the various factors in a housing purchase decision - including efficiency - and came to the determination that on average, for the buildings in their study, the average price impact for a retrofitted, efficient building was a 2.86% increase over a comparable non-retrofitted building. The study also noted that only 60% of the retrofitting costs were recovered through the sale, and cautioned policy makers,

"to incorporate the sale value information in the financial analysis of investments in energy efficiency measures, but to do it with caution, only when and where, there are reliably proofs that the studied real-estate market reacts to energy performance."

It will be incumbent upon the city to transparently study the effectiveness of these measures in driving energy efficiency and home value.  

My hope is that this leads to a step where energy bills can be rolled into mortgage payments in the same fashion we currently combine property taxes into our mortgage payments through escrow so the consumer can see upon purchase and financing the value of utilities into their payment.  Then those determining and underwriting home value would have a built in mechanism to communicate and finance improvement.  Alternatively, we can build in energy efficiency investment into the property tax bills accomplishing the same result.

If benchmarking and listing energy convince owners to invest in efficiency on a large scale, it will be a welcome tool in the path to self-sufficient communities.  However, we need to follow through and make sure that investments are not the result of other programs, and that increases in value do not occur just because of market rebounds.  The City has taken some bold steps, and needs to follow through by tracking these performance metrics, then making sure that alternative solutions are ready to go if value does not follow as planned.