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âCliff Majersik
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Episode 135 is a conversation with Cliff Majersik, Senior Advisor at the Institute for Market Transformation, a nonprofit thatâs focused on regulatory and nonregulatory ways to push the economy toward decarbonization.
We talked about how market transformation works, the policy levers that we in the United States have for requiring decarbonization, and finally, we dove into how building performance standards work and what building owners can expect from those laws as they spread throughout the US and the world.
So without further ado, please enjoy this episode of the Nexus Podcast with Cliff Majersik.
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Note: transcript was created using an imperfect machine learning tool and lightly edited by a human (so you can get the gist). Please forgive errors!
[00:00:00] Cliff Majersik: Building performance standards are policies that actually require a minimum level of performance by buildings. And, uh, they apply to all buildings, even buildings that aren't polling, building permits. So they compliment building energy codes. Uh, they apply to the 98% of buildings that aren't being built each year.
Um, that may, if not for these laws, might do everything exactly this year as they had last year and 20 years. So they require that existing buildings have to improve on quantitative basis. So a building performance standard can require improvement on any metric, any performance metric that can be objectively quantified.
And the ones that that we see, they're 11 building performance standards in place around North America. And, uh, a lot of those deal with greenhouse gas emissions. A lot of them deal with energy use intensity. Um, some of them deal with energy star scores. Um, they, requiring that the buildings have to achieve some minimum level of performance by a set date, and the performance [00:01:00] requirements ratchet up over time.
[00:01:35] James Dice: As we impact on one of our most popular episodes ever. Episode 44 with the legendary John petsy sky spark is a comprehensive software platform for connecting, storing, analyzing, and visualizing data from devices and equipment systems, sky sparks, automated analytics, KPIs, energy, and greenhouse gas apps.
Turn your data into actionable intelligence, providing improved performance, reduced [00:02:00] downtime and operational savings. Head over to sky foundry.com for insightful white papers, case studies and blog posts. As well as the link to sign up for a free demo.
[00:02:11] James Dice: This episode is a conversation with Cliff Majek, senior Advisor at the Institute for Market Transformation, a nonprofit that's focused on regulatory and non-regulatory ways to push the economy towards decarbonization. We talked about how market transformation works, the policy levers that we in the United States have for requiring decarbonization.
And finally, we dove into how building performance standards work and what building owners can expect from those laws as they spread throughout the United States and the. So without further ado, please enjoy this episode of the Nexus Podcast with Cliff Majek.
[00:02:46] James Dice: Hello, cliff, welcome to the Nexus Podcast. It's great to have you here. Can you start by introducing yourself?
[00:02:52] Cliff Majersik: great to be here, James. Well, I'm Cliff Majek and I'm the a senior advisor to the Institute for Market Transformation. Uh, a [00:03:00] nonprofit in Washington DC that's focused on building performance as a way to fight climate change and benefit people regardless of where they live, work, and. And, um, I have been at IMT for more than 20 years now.
I have worked with a variety of jurisdictions, variety of companies, you know, from the early days when we were sort of narrowly focused on energy efficiency to today when we looked much more broadly at building performance and how that plays into decarbonizing the economy and, uh, advancing equity across.
So it's been an interesting ride over the last 20 years and, uh, I'm excited for what the next 20 years will bring.
[00:03:39] James Dice: Awesome. You might be surprised with this, but I, I would love for you to go back before those 20 years and talk about your personal background, like how'd you get into this space in general.
[00:03:51] Cliff Majersik: Sure. Well, I actually had a pretty, uh, wild ride getting here. Um, I went to Williams College focused on [00:04:00] political. and my first job outta college was working for the New York District Attorney's Office listening to Wiretaps of Mafi. My first boss was Elliot Spitzer. Uh, and I actually testified in grand jury against, um, some, uh, Gambino bosses, um, who, uh, ultimately, um, uh, had ended up, um, feeling the consequences of the, uh, judicial system.
Um, so I've, uh, did that. I went on and, and ended up working. Lobbying for, uh, improved superfund, uh, toxic cleanup laws. I moved here to Washington DC to do that and went on to the, uh, conservation International, where I focused on, well, actually before that I started an internet software company. Um, and, um, uh, sold out of it.
It was venture backed. Uh, I went to, uh, conservation International, where we, I focused on working. Um, the e-commerce industry to try to reduce the impact on, [00:05:00] um, climate and biodiversity. Uh, and uh, then I came over to IMT because I wanted to focus more on an area where I could really focus on the business case, um, for improvements and energy efficiency, which was the main focus at that time.
There's a really strong business case. You get a great return on investment from focusing there. So not only does it help society, but it helps the bottom line of the companies that are seek.
[00:05:24] James Dice: Got it. Brilliant. So, Um, I'd love to circle back on the software company. What was the, what kind of software did you guys build and does the company still exist?
[00:05:34] Cliff Majersik: it still exists. At the time I was doing it, it was doing intranet software, um, helping companies to set up software, um, to communicate internally and trade associa. We sold that off, um, to, um, a sort of high flying software company. And, um, then it, uh, after I left, after I cashed out, it's now focused on secure instant messaging for the Department of Defense [00:06:00] and other sort of, um, clients that need secure instant messaging.
Um, but that was not the focus at the time that.
[00:06:06] James Dice: fascinating. Let's go into I M T. So. Institute for Market Transformation. Can you just talk about in general, what is bargain transformation and sort of how does it, how does it work?
[00:06:19] Cliff Majersik: Sure. Market transformation is a term that came out of the utility efficiency world. So it's um, set up in contrast to like rebate payments, the things that people most often think about when they think about utility. Those, um, people will do the right thing when they're getting paid to do the right thing, but often they'll continue to do whatever they were doing before once those payments go away.
Market transformation is different. It's permanently changing the business cycle. It's, it's identifying ways to make things in someone's business interest to do the right thing, even when they're not getting paid to do so. So, um, it's, uh, includes things. Laws [00:07:00] that require improvement, but also, um, ways that you can restructure the market with information.
You can better align incentives, um, such that, um, business will change permanently. And, and there's, you know, it's not, uh, in any way at risk of backsliding if funding goes away. Uh, and so we were founded to focus on market transformation. Some of the things that we looked at are, for instance, the, the ways that property valuation didn't properly account for building.
And by building, by valuing a property better, by reflecting its true financials, the the revenue stream is gonna result the risk that's, uh, inherent in poor performing buildings. It just becomes a lot more profitable to invest in high performing buildings. Uh, and we worked with the appraisal institutes and, um, on federal legislation to try to better align the reality of building performance with how it's valued.
And there's been some real progress there and there's still a lot more room for, for improvement. But that's an example of market transformation. That's in no way [00:08:00] dependence on utility or other.
[00:08:02] James Dice: Totally. I wasn't planning on going into that, but can we talk about that for a second? How, you know, in, in terms of where buildings are at in terms of, you know, transactions, res reselling buildings, um, how often are, is building performance being taken into account today and is there like a roadmap that you guys have that.
[00:08:23] Cliff Majersik: Sure.
[00:08:23] James Dice: of promotes that being part of the equation,
[00:08:26] Cliff Majersik: Well, and it's most basic, um, certain parts of building performance are, are, are usually taken into account when you're talking about commercial buildings. There's a very different way of valuing commercial, building from say, a single family home. Um, there's, you know, and when you're thinking about appraisal, which is, doesn't exactly line up with the way that buyers and sellers think that it does have some overlap.
There's broadly, sort of three ways to value a, a home or. Um, there's the sales comparison approach where you just look at similar homes or billings sold and, and you figure out all, well, let's make adjustments to us comparable, and that's how much this one's worth. That's what people [00:09:00] usually do in single family, and that often doesn't account for billing performance pretty much at all, which is a, a real, uh, market barrier.
Uh, and then there's the, the, um, replacement cost approach. How much would it cost to sort of build this home or building again, that's the least used? In the commercial space, the main method by far is the income approach to valuation. Uh, and there you're looking at, you know, what's the net operating income of that building, how much cash is it throwing off every year?
Uh, and that will reflect things like utility bills. It will also reflect things like vacancy rates. And we know that high performing buildings have lower utility bills. They also have lower vacancy. And they have higher effective rents. Um, so it, that does tend to value building performance to a certain degree.
But often what you have unfortunately is people who will be like, oh, well this building has a really, a really low vacancy rate. I'm just gonna adjust that back to the mean. Uh, and, and now you've just [00:10:00] eliminated all of the benefit of this high performing. . So it's important to understand, no, this building has a better lower vacancy rate because it's a high-performing building and you need to talk to the tenants maybe to understand that, that it's more comfortable to be in, that they're reporting their greenhouse gas emissions to their shareholders and investors, and they want to be in a high-performing building.
But a lot of times, uh, buyers, investors, appraisers don't take that extra step and they end up sort of writing off the value that's been created by this high performing building. So we're trying, we've been trying to educate the. Um, to recognize that high-performing buildings are, are better buildings, uh, and, you know, tenants and others say, you know, I have a high performing company.
I have high performing employees. Why wouldn't I want to be in a high-performing building? And they're willing to pay higher rents and, and higher, um, purchase prices for those buildings.
[00:10:49] James Dice: absolutely. Yeah. Thank you for that little, little deep dive into that, that sort of side topic. But I'm sure there are tons of different topics that you guys produce education [00:11:00] around. Um, that are just like that. Can you talk about a, a lot of this is resonating because the, that's the way sort of, we at Nexus Labs sort of think about our role.
How do we educate and help these, you know, long term, you know, consistent market transformations happen. Um, you guys are obviously doing it on a, on a different, different scale. Um, the. The way that I think about the smart buildings ecosystem, which again sort of overlaps with building performance or energy efficiency or decarbonization a little bit, is that there are a bunch of different roles.
And we are all showing up to create that market which must transform. Right. Um, so how do you think about all the different roles of all the different players inside of each sort of market ecosystem? So there's like, obviously policy makers, um, utilities, building owners, technology providers and startups.
Um, how do you think about all of those people coming together to sort of make transformation happen over the [00:12:00] long term?
[00:12:01] Cliff Majersik: Well, that's exactly right. That's what we need. All of those players have important roles. Um, and, um, what we need is for every step of every major decision building performance needs to be factor. Uh, and policy needs to, uh, align. Um, you know, there are all kinds of externalities where, you know, the most obvious one is carbon pollution.
Currently in the United States, you know, there's no cost to the polluter of putting carbon pollution into the atmosphere, and that's an enormous burden that is created for the world, including the us. And so policy needs to, uh, align incentives address external. , uh, and then every person in, in the process from, you know, the, uh, initial, um, person at, at a tenant say, who's writing the, the specs for what space we're gonna lease.
They need to write in that they want a high performing building. . Then the, the realtor who's, uh, showing them space where they can lease needs to be able to communicate to them and [00:13:00] educate them about, okay, here is a high performance bill. Like here's why it's high performance. Here's how much lower the utilities will be, how much lower the greenhouse gas emissions if you're occupying the space.
Um, and then the lawyers, uh, who are gonna be writing that lease. Need to, uh, understand that there's win-win opportunities. Green leasing, where both the landlord and the tenant can come out ahead when they've aligned the incentive so that when the building is performing better, both of them prosper. Uh, and that needs to be written into the lease.
Then the, the, um, property manager needs to do a job of communicating that to the tenants existing, uh, and new. Um, and the building engineer needs to be operating the building for maximum ef. Uh, thinking about things like shifting loads off-peak times with lower carbon and lower prices, the utilities need to be pricing in so that, um, they're rewarding building, uh, occupiers and owners that are using, um, electricity when it's low carbon and when it's not stringing the grid and risking, um, [00:14:00] risking blackouts.
Um, the, uh, there needs to be either the engineer on site or or an external expert that's coming in and systematically looking at individual buildings and portfolios of buildings and finding where the best return on investment opportunities for making those improvements. And that works in, in tandem with the utilities, rewarding building owners for shifting load to off peak.
You have to have investors that are thinking about, you know, what is, uh, the long term value and risk of this building and recognizing that high performing buildings are, are lower risk buildings and, and deserve lower cap rates, which means higher value. Um, and building owners that are smart enough to, to seize all these opportunities, to improve building performance, to attract and retain the most valuable tenants, to, um, draw investment from investors that are farsighted and, and, you know, they have sustainability commitments of their own, their ESG funds, or just increasingly in the future, all investment is gonna be thinking [00:15:00] about the risks inherent with long lived assets like buildings and making sure that those buildings are future.
That they are gonna be able to prosper in a decarbonizing economy. All of that comes together. Um, and you, you have, uh, you know, a huge engine for economic growth and, and climate benefit. But if any piece in that long chain is broken and, and right now most of the pieces are broken,
then the system kind
of breaks down and people are dramatically under underinvesting in high performance buildings as a con.
Of those barriers, of those breakdowns, lack of information flow, misalignment of incentives, you know, externalities that, that are have not been addressed. So there's a lot of things that need to be fixed, but the good news is that when we do fix them, it's gonna unleash a, a wave of investment and, and really positive returns.
And we need to see that. We need, we need to see new millionaires and billionaires being created from fixing our [00:16:00] buildings and, and, and decarbonizing our. Policy makers need to recognize that, uh, and, uh, you know, entrepreneurs and innovators need to be looking sort of two or three steps down the road and positioning themself for, as the new policies and the new market realities fall into place and you get rewarded for these high performance buildings and these new technologies.
So they're gonna.
[00:16:22] James Dice: Wow, that's such a great, great answer. We're gonna have to chop that up into its own little, little clip like Cliff's mic drop moment about all the different problems that need to be solved. I love that. Um, I love that answer too, because when I post about sort of what do we have to do, I like to post on LinkedIn and get a lot of feedback, a lot about what do we gotta do, what obstacles are there, what ideas do you have, what tactics do you have around decarbonizing buildings?
And one of the things I get, there's a certain faction of the industry, a certain faction of this audience that's listening to this right now that would. [00:17:00] You know, regulation is our only hope, right? The only way that we're gonna decarbonize buildings, if someone says they must be decarbonized or else business no longer can continue, right?
And I struggle with that a little bit because it doesn't take into account all the other, I mean, you listed out just like 20 different things right there, but it doesn't take into account all the other things that are not regulatory, right? You still need the supply chain. You still need the workforce to implement it.
You still. Um, like you said, someone that's deep inside the specification, uh, process to make sure that this line item and the spec gets in there. Right. Um, so can you talk about like it's regulation and I, I feel like, is what I'm hearing you say.
[00:17:43] Cliff Majersik: That's exactly right. It's regulation and I mean, we know that there has been improvement. Buildings are getting better, you know, information is flowing better. Those are getting a little bit more. But when you look at the bottom line, when you look at greenhouse gas emissions across the economy or across our built environment, [00:18:00] they're moving in the right direction but not nearly fast enough.
We need to do something very different, you know, expecting that we can just do as we have done in the past and get where we need to go is, is just unrealistic. We need a, we need a level of improvement across our entire economy that has rarely been seen in the built environment, in any jurisdiction at any time.
And yet we're going to need to consistently get that level of improvement every year. Uh, and so we have to pull pretty much every lever that's in front of us. And regulation is clearly one of them, but it's not enough. I mean, you can, you can write the best law in the. And, uh, the market needs to act on it.
You need to have innovators that, that see the opportunities that that regulation creates opportunities for them to provide new services and products and to prosper. You need to have, you know, investors, brokers, appraisers, everybody else in the value chain needs to absorb this new reality that's created by the regulations and by just the evolving.
And [00:19:00] look ahead and, and, and connect the dots and see, alright, this asset, which we used to think was sort of top of the line, it's impaired. It's, it's not performing as well. And either it's gonna have to have major improvements or it's gonna have to be completely repositioned, or it's just, uh, it's just, you know, a much less valuable asset than we used to think.
Uh, and this other asset, which maybe was neglected, is it's a diamond in the ref and it's much more valuable than we thought it was. And once that thinking pervades, then that's gonna drive billions of dollars of investment. The New York City, uh, building performance standard law, local law, 97, that's been projected to drive 20 billion of investment in buildings over a 10 year period.
And that's just one city across the country. And that's gonna, there're gonna be many, many people. Make a lot of money from owning better buildings and from providing the services and products to make buildings better. Um, so regulation is a part of the picture, but it's just the just one piece of a big puzzle.[00:20:00]
[00:20:00] James Dice: Totally. So now that we've sort of like set the context, I do kind of want to talk about regulation . Uh, and, and, and I think when you and I met at the Verge Conference in San Jose in the fall, we, we kind of, we had the idea we were sitting at, it was kind of a serendipitous moment. It was like, I think we had met before, like a long time.
And then we're sitting in this couch and I think both of us were just like taking a break. And it was like, oh, I was like, you're cliff or whatever happened. I don't know exactly how, how it happened, but uh, it was very serendipitous to have been the conversation we had around building performance standards.
And it'd be fun to talk about kind of where things are going. So before we get into building performance standards, I'd love to talk about kind of all the policy. le you call them levers, all the different policy levers that we have to sort of push the market towards decarbonization. So I'm gonna kind of, kind of walk us through the different ways, um, and I'll give you a chance to add to them.
[00:21:00] But, um, The first one is on energy codes and. . I wanna start with a little like aside for people that don't understand kind of where energy codes fit, can you talk about first why energy codes matter?
And then get into like the status of the energy codes and kind of where we need to go. Is it a good, is it good news right now? Bad news where we need to head, but first start off for people that like don't know why energy codes matter. Can you talk, can you talk a little bit about that first?
[00:21:27] Cliff Majersik: So energy codes are, uh, one aspect of building codes, uh, in most jurisdictions around the country. Um, there are building codes which establish sort of minimum standards for any new construction, uh, major renovations and certain other improvements in buildings. And, uh, those become unfortunately kind of the, the standard construction, um, recipe.
Um, I say unfortunately because building codes established the minimum performance that's permitted under law, and [00:22:00] unfortunately a lot of builders treat that as both the minimum and the maximum. They're just building to the code. Um, and energy codes, um, are codes that were originally established, um, you know, more than 30 years ago.
Um, to, uh, protect the occupants of buildings, um, mostly from high utility bills. If you, uh, have a really badly built building, you're gonna have to pay a whole lot of money in electricity and, and often gas. And that doesn't serve anybody. And, and, um, people that are buying a home or even buying a commercial building, they shouldn't have to be engineers and experts on building performance.
They should have protection from the law, just like we have other consumer protect. You know, a car shouldn't blow up when you drive it off the, the lot. Well nor should a building be leaking massive amounts of air and, and driving up huge utility bills and being uncomfortable. So energy codes, uh, which are, uh, building energy codes were developed to protect, uh, buyers of buildings and make sure that they had buildings [00:23:00] that function properly that wouldn't be excessively expensive for them to operate.
And then more recently, Um, we recognize that buildings are a huge driver of greenhouse gas emissions, uh, buildings, um, account for more than the third of all greenhouse gas emissions in the United States. Um, and that's, uh, along with transportation. Those are the two largest sectors, uh, driving our greenhouse gas emissions.
And, and so there's a recognition that building energy codes an important lever for improving, uh, our climate performance of our buildings and our. And that means that, um, there's been a, a real push to have building energy codes, uh, pushing buildings to perform better, um, pushing towards, uh, net zero carbon buildings, which, uh, means in part using no fossil fuels on site, uh, minimizing the amount of electricity that you're using as well.
And also in the future, and in most cases, billing codes aren't doing this yet, but they are starting to do this in ca. Pushing towards [00:24:00] when they are using electricity, using electricity when there's lots of low carbon electricity available. So building codes, um, are incredibly important for decarbonizing the built environment, but they only apply to buildings that are newly built, uh, major renovations and, and certain other, uh, changes that require building.
Uh, and what that leaves, you know, you're, you're typically, you're only adding one 2% to your billing stock every year. That leaves the other 98% of buildings that aren't pulling, building permits that year. And that means that, uh, we need to have policies that address those and we refer to those as existing buildings, and that's where the real big money is in terms of opportunities for improvement to those.
When you have 98% of buildings that are not addressed by building codes, that's 98% of the opportunity in many ways, that is available for, for industry, if you can drive improvement in those existing buildings.
[00:24:55] James Dice: Yeah. And, but, but for those one to 2%, it's kind of [00:25:00] the best time to make it happen, right? Because a lot of times when a, a, a building gets built, you're not, you know, the developer or the new owner after it's developed is not planning on doing a whole lot of upgrades for a while.
[00:25:10] Cliff Majersik: That's right. And in fact, the best time. The very beginning, the best time to think about building performance is before you've even thought about who you're gonna hire to design the building. Um, a best practice is to set really high standards. This we want a really high performing building, and we're gonna put that out into the RFP or anything else that you're using to select the design team.
And you're only gonna get design teams that know how to build high performance because some design teams don't know how to build high performance building. And then they're gonna charge a huge premium because it's gonna be change orders and trying to teach themselves as they go. But if you set the, the goals at an aspirational level from the beginning, often you can get very high performance buildings at little or, or no additional cost.
[00:25:52] James Dice: Got it. So last thing on energy codes, how does, how do you guys look at like the current status of energy codes as [00:26:00] imt? Like is there still a ton of work to do there or is it kind of on, on its way?
[00:26:04] Cliff Majersik: There's still a ton of work to do. There's a ton of, we have model energy codes that are developed by, you know, the International Code Council and Ashray, um, and those Marvel codes are making good. Um, they have a long way to go still. Um, and they're, uh, increasingly you have jurisdictions that are pushing to go beyond the best model codes.
Um, but where the big opportunities are is lots of jurisdictions that they're using, you know, 10, 12 year old model codes. And, um, those jurisdictions are leaving a lot of money on the table with low performing buildings that are, uh, being built in compliance with the code. So they need to improve their codes and also you have a big problem.
Poor enforcement and compliance with energy codes. So those are the, the biggest opportunities are in raising the floor, the, the jurisdictions that have poor building codes or as rare cases, no building codes at all. Um, and, um, having better [00:27:00] enforcement and compliance with those codes.
[00:27:01] James Dice: Got it, got it. Okay. Next topic is around electrification, which is similar. Right. Um, a lot of codes are requiring, and you tell me if it's similar, I guess, but my understanding. There's a lot of codes around the country. Um, you know, municipalities close to me, um, in Denver requiring electrification in new buildings, um, or major renovations retrofits.
Um, where is that at? And kind of what's the, what's the roadmap that we need to go on there?
[00:27:31] Cliff Majersik: Well, ultimately we would like to see, you know, all new construction, be all electric. Um, and there are a handful of, um, of uses that may take a few years to, um, make all electric in the near term. Things like backup power for hospitals and that sort of thing. But, uh, you do see a, a several jurisdictions, including places like Denver and New York City, Washington.
That through their building codes, California are saying, look, [00:28:00] new construction is gonna have to be all electric. Um, and, and a little bit more difficult is major renovations, but many of those jurisdictions also are requiring that major renovations usually with a little bit of a lag. Um, also we're gonna have to be all electric.
Uh, and that's, um, certainly key. But again, that leaves out 98% of buildings that have already.
[00:28:19] James Dice: Totally.
[00:28:26] James Dice: As we covered in our recent blog series on the five vital roles, smart buildings require engineers and engineering that allows OT and it systems to seamlessly and securely integrate with each other. And integrate with common platforms. Creating a successful building intelligence strategy entails translating the owner's goals to outcomes, use cases, intelligent building technologies and enhanced MEP systems.
To learn about what JB and B is calling MEP 3.0 and the value of building intelligence design. Check out our friends at JB and B and specifically . Their [00:29:00] podcast conversation with Wiredscore at the link in the show notes.
[00:29:04] James Dice: Okay. I guess we're gonna move on then Outside of that one to 2% of new buildings, Talk about existing buildings, and maybe you could tell me with the difference between these two categories, but the next two categories I had would, would be benchmarking and performance standards. And some, and some municipalities have them, or, or, you know, states, um, countries even have them as like one program.
Right. Um, so can you talk about those as sort of a, a category in and of themselves?
[00:29:33] Cliff Majersik: Sure. So, uh, benchmarking and transparency laws are, are pretty new. Um, Australia was perhaps the first. Australia and Denmark, I think were two of the first. Places to adopt them, um, back, uh, you know, 20 ish years ago.
[00:29:48] James Dice: And we did a, a episode about a year ago with, um, the neighbors program, sort of talking about the, the transformation that's happened there.
[00:29:56] Cliff Majersik: yeah, neighbors Is is the, uh, Australian program and it's been [00:30:00] enormously successful. Uh, and it was one of the models I helped write the first benchmarking and transparency law here in the United States, uh, in Washington DC which passed back in 2000. And we were looking at Denmark in Australia as, as models for how to do that.
Uh, and then in rapid succession, other jurisdictions followed Washington DC's lead, and in fact, New York passed its law after DC but ended up implementing its law before DC's was implemented. And so New York was also very much of a trailblazer. And, um, now you have, you know, 40 some jurisdictions around the country, including states like California and Washington and Colorado and Maryland and New Jersey that have these benchmarking and transparency laws.
And what these laws say is that buildings have to rate how well they perform, uh, using the Energy Star system, which is, uh, the American system run by the United States Energy Environmental Protection Agency, epa. Um, and it's a free tool that's been widely used on a voluntary basis going back to the late 1990s.
And, uh, it's, [00:31:00] uh, compares buildings to their peers and it adjusts for things like weather and also how many people are in the building, how, what are the operating hours of the building. So it's really giving you an apples to apples comparison of buildings, uh, against themselves over time and against their peers.
And it gives buildings a one to 100 score. We're we're 100 is best and one is. It also measures things like greenhouse gas emissions and energy use intensity. Um, so these benchmarking and transparency laws require that buildings have to use that, that free system, they have to generate that one to 100 score and other information like greenhouse gas emissions usually, and publish that for the world to see.
So in all these jurisdictions, you can go, uh, Uh, see a map of all the buildings in, uh, the jurisdiction, I should say most of them. Occasionally there are some where you have to sort of downlight a spreadsheet of addresses and scores, um, but you get to see how these buildings are performing. Is this a, a, a great building, a, a 99 building or a really poor performing building, a two or a three, for [00:32:00] instance.
And, uh, that is informing the market so that if you're going to lease a building, if you're going to invest in a. Uh, you're have a virtuous cycle of competition where you want higher performing buildings. You're willing to pay more for a higher performing building, and that gives the building owner an incentive to invest, to make that building better so they can attract and retain tenants so that they can get that investment.
So that's benchmarking and transparency laws. The first one, as I said, was in DC in 2000, uh, and eight. Um, and they've been steadily growing with more and more jurisdictions adopting. . Um, but they don't require performance. They require disclosure of performance. But you could disclose that you have an energy star score of one, the worst score possible, and that's it.
Plus you've, you've, um, complied with the law, uh, and that they produce, uh, improvements. You know, many sort of studies down that sort of two and a half percent per year reduction in energy use when you have these benchmarking and transparency loss. But [00:33:00] that's not enough. That's not on the, the PACE that we need to meet the decarbonization goals.
Many jurisdictions have goals around like 50% reduction in greenhouse gas emissions by 2030. Uh, you know, net zero by 2050. And nothing that they had done, including these laws had put them on PACE to achieve those kinds of commitments. And so they needed something stronger that would, um, accelerate the rate of.
and that led, uh, jurisdictions, again starting with Washington DC in 2018 to adopt building performance standards, which not only they're built on top of these benchmarking transparency laws, they use the Energy Star program to measure how well buildings are performing, but they also set minimum performance requirements, um, with consequences for not achieving those minimum levels of.
[00:33:49] James Dice: Totally. And you said 40 state and local governments ish are now on board with that [00:34:00] higher level of stringency. Is that kind of where we're at today?
[00:34:02] Cliff Majersik: More than 40 jurisdictions have these benchmarking and transparency laws. Collectively, it's uh, well over 11 billion square feet of space. So it's a, a real significant part of the economy, and it also tends to correlate with some of the highest real estate. Places like Austin, Texas, and, uh, California and New York and Washington and Denver, and Chicago, Maryland.
So you have a lot of high value real estate areas that have these loss as well as, you know, places, um, that are, you know, Kansas City, which is a great, um, market, but you know, there's some more value to be had there.
[00:34:37] James Dice: Yeah, we, we hosted a Nexus Happy hour in St. Louis last week, and we had the city's benchmarking administrator, benchmarking performance administrator, Malachi. He was at the happy hour. So, uh, shout out to the, the St. Louis folks. Um, cool. So, Those are the kind of the four energy codes, electrification, benchmarking, performance standards that [00:35:00] I kind of have always thought are, you know, the, the key to this.
Right. Um, what other ones, what other, what other categories are important in terms of policy levers that we should touch on before we kind of zoom into to performance standards?
[00:35:14] Cliff Majersik: Sure. Well, we talked broadly about building performance policies and that includes everything from the most common and perhaps the lightest touch of benchmarking and transparency laws all the way through, um, the most powerful, um, of Billy performance. But in between you have things like, uh, audit requirements and re building retuning requirements, um, where you're requiring periodic energy audits to, I identify, uh, opportunities to improve the performance of the building.
And typically, um, you are exempting from that requirement, very high performing buildings and similarly retuning laws where you're, uh, looking at, you know, the, the highest performing buildings are exempt. The other buildings have to bring in engineers periodically, like a five year. To look at opportunities to improve the performance of the building.
And [00:36:00] that's about, not about capital improvements, that's about making sure that the systems are operating as designs and, and un Unfortunately, very often buildings are not operating as design and so you can get a really good return on investment from retuning. Um, and so those are a couple of policies.
There's also building labeling, uh, New York City and Chicago have these. Uh, and that actually involves required buildings to display in their lobby. Um, a letter grade, or in the case of Chicago, a number of stars with four stars being the best, which actually winds up with the Chicago, uh, flag. Um, and that's a, a, a more powerful message to the market so that anybody walking through that lobby, including tenants, Is immediately sort of alerted to the performance of the building, similar to letter grades for, um, for restaurants, uh, you know, sanitation that places like New York City have had in place for a long time and do drive behavior.
I mean, you see, I, if I see a building, a restaurant that has a sea grade, I'm usually gonna keep on walking. I'm gonna look for a restaurant with an A Grade. Um, and [00:37:00] similarly the hope is that, and I think we're seeing some early indications. Tenants and others will similarly want high performing buildings.
When they see it right there in the lobby, they'll ask questions of the owner and that will prompt the owner to make improvements.
[00:37:12] James Dice: Totally. How about things like, um, . I know, I know. A big piece of even enabling a benchmarking program is getting access to the data itself. Are there any, um, is there any legislation around simply making, forcing the utility to share data in a, in a meaningful, accessible way?
[00:37:32] Cliff Majersik: yes, there is. Um, it's certainly a best practice and we have another jurisdictions that have done that either through legislation or through action by the regulator of the utility. Usually called the Public Utility Commission or Public Service Commission requiring the utilities to do that and, and, uh, rewarding them for doing that.
Um, so, and then you have a number of utilities that have done this voluntarily. Sometimes they did it because they were required to do it in one jurisdiction, and they said, you know what, we're just gonna do this across our entire [00:38:00] territory, which may span several states. And so there is a map that the US EPA maintains where you can see all the utilities that will provide whole building data access to building owners.
And this is much more of an issue in tenanted buildings where the tenants are receiving utility bills directly from the utility, and the building owner doesn't see those bills at all. Because in order to EnergyStar benchmark a building, you need to know how much building is being used across the entire building, including the tenant.
Is, and that means that you need to put data from all of the utility meters in that building into the energy star system. And so it's easy if you own the building and there's only one meter, and then you just take the data from that meter, you take the data from your utility bills and you put in on a monthly basis.
But if you need to get the data from your tenants, that can be a chore, especially in in apartment buildings where you can have, you know, a hundred tenants and it's just impractical to try and get data from all of. So in that context, uh, having a utility that will take all the data together for all of the, [00:39:00] um, occupants and tenants in that building, uh, and upload it directly into the Energy Star system, that's a huge benefit.
It makes it much more practical for building owners to know how they're performing so that they can, uh, look, uh, across their portfolio. It's the opportunities for good investments and also so they can comply with these benchmarking laws and, and other laws that look at billing. Ones
[00:39:21] James Dice: Totally. But you're saying there aren't, there aren't like actual policies, kind of
[00:39:27] Cliff Majersik: are laws and frequently a jurisdiction
at the same time that they pass a benchmarking law will require the utilities to provide the data. Uh, one of the challenges is that a lot of these benchmarking laws have been passed at the local level, but utilities are usually regulated at the state level.
So that's one of the, the reasons that why we're particularly eager to work at the state level because the. Um, regulate the utilities and it's very easy for them to require utilities to provide this data.
And then
there there's also requirements around providing real time data. Uh, and this data is very valuable, um, for like solar [00:40:00] installers when they're making the business case to, um, owners about, um, why they should invest in solar panels on their roofs, say, Um, and so there are a lot of use cases for this data.
This data belongs to the rate payers. It's the people that are paying for the utility service that own that data. But, um, sometimes utilities treat it as like, no, you know, we want to keep this in a black box and monetize it and not make it easy for the owner to share with anybody else. So, um, liberating this data, um, and enabling it to drive transformation in the buildings and in the market is a big part of our strategy and we've had some success.
[00:40:36] James Dice: Great. Last question is around leasing. Are you able to actually sort of work the green, you guys do a lot of work in green leasing. Are you able to work those um, pieces into these different laws?
[00:40:48] Cliff Majersik: Um, typically leasing is something that isn't really regulated. It's a, you, you, you know, governments of course, uh, lead by example with their own leases. So we want, and we have a lot of [00:41:00] governments, including the, the federal government, um, that, uh, have green leases where they're saying, you know, we want X, Y, and z, um, uh, in the lease so that the landlord and the tenant are gonna be both performing better when the, the, uh, building is, uh, high performance building.
Um, but, uh, we have not seen, you know, jurisdictions that have said when you have two private parties, a landlord and tenant that are signing. That they need to have a green lease that's gonna align their centers. But what we are seeing is things like building performance standards, which, um, have real consequences for non-performance.
And if they're designed properly, those consequences will flow to the people that are driving low performance in buildings. And that's not just the owner, the tenants play an important role, especially commercial tenants. So you, you want to have, and we've, our model, we have a model building performance standard.
Um, which, uh, aligns incentives. So both the tenants and the landlords have skin in the game, so they'll want to set performance [00:42:00] targets. Alright, this building is required to perform this. Well, let's develop a plan for how that building will perform this well. And then let's allocate responsibilities. And the owner, of course, is gonna be the leader in doing that.
And the owner's gonna be making improvements to the buildings, but the tenants through their own behavior and through providing access to their. and through potentially helping to finance improvements to the building, they're gonna be an important part of the solution as well. And everybody needs to be incentive to work together to have high performing buildings.
So while these building performance standards, if they're designed properly, they align incentives between the landlord and the tenant, but they don't directly require anything in the lease, but it creates a win-win opportunity. Even without that, there's a win-win, but it creates an even bigger win. For landlords, tenants to sign these green leases, um, that help them work together and to, to have really good communication.
[00:42:49] James Dice: Makes, makes a ton of sense. So let's zoom in on, um, building performance standards itself a little bit. So we started to a little bit there. Can you talk about, um, [00:43:00] you know, we talked about, you know, 40 plus. Jurisdictions. Um, if I'm a building por like a portfolio owner and I got buildings everywhere, and I, I'm not sure quite sure how this is gonna impact me, what would you say to them to help 'em understand where this is headed in the future?
[00:43:18] Cliff Majersik: Well, what I would say is, um, buildings are, you know, the, uh, one of the top two drivers of greenhouse gas emissions. You have jurisdictions around the country that have committed to decarbonize their economy, and buildings have to be a foundational part of that. So the buildings are going to have to perform.
and, um, the jurisdictions are going to push to make that happen. And building owners need to be part of that solution. And they need to, to be working, to, um, make sure that these policies recognize real estate realities. Um, and these policies are gonna happen. You already have them in, you know, 11 jurisdictions around North America, including some of the biggest jurisdictions like New York City, um, like, [00:44:00] um, you know, Boston, Washington dc, the states of Colorado.
And, um, Washington State and, and Maryland. So you, they're already in place in lots of places. You have also, um, president Biden has a building performance standard coalition, which he announced back in January, 2021. Um, sorry, January, 2022. And, um, that includes 37 jurisdictions, including other big ones like California that are all committing to either they already have billing performance standards in place, or they're committing to have them in place by Earth Day of 2024.
Uh, and so you can look on at that map, uh, which is national bps coalition.org and see all those jurisdictions. But even if you own buildings that aren't in any of those jurisdiction, This is the direction the market is going. This is the direction governments are going. So you need to plan, you need to future proof your buildings by planning to have these policies in place everywhere.
So adapt. And it's, you know, companies typically have a single policy in [00:45:00] place across the board, across their portfolio. So gov companies need to govern their portfolio as though there's building performance standards everywhere and, and be pushing their buildings towards high performance, develop long term capital improvement.
For all of your buildings to be decarbonizing over the next 15, 20 plus years. And, um, and you'll be rewarded increasingly, you're gonna have these policies in place, but you're also just having investors that are recognizing that high performance buildings are a better opportunity, a better business opportunity.
They're willing to, to have lower capitalization rates, pay higher prices for these buildings. You have tenants that want these buildings, so you. Design your, your corporate policies and the expectation that these building performance standards are gonna be everywhere across the country. And know that even if you know they take longer in some jurisdictions than others to materialize, you're still positioning yourself for the future into profit.
[00:45:54] James Dice: Totally, and this is something I, the, the capital plan piece is something I've talked about [00:46:00] on, on the, the show quite a bit, and I, I've been, I've been pleasantly surprised with the, the progress lately in terms of hearing a lot of building owners talk about. Okay. Are our exact plans. Um, we couldn't say that like a year ago really.
It was mostly like, we have this target and we know these standards are happening and we know that we're gonna have to improve, but we're, we don't exactly know how we're gonna get there. And I've seen quite a few leading organizations, especially at Greenbuild this past fall, a couple different building own organizations saying like, these are the retrofits.
We're doing 'em, and these are the order we're doing 'em in. And like, it was very impressive to hear some of these presentations. I feel like I wanna like give a little PSA around just some hope there that that's happening more and more, which is great. Great to hear. I'm sure you're seeing something similar.
[00:46:49] Cliff Majersik: Yes, absolutely. Uh, I mean, which isn't to say that there aren't lots of jurisdictions, lots of, sorry, uh, building owners that are still. , you know, their capital plan this year looks a lot like their capital [00:47:00] plan last year and
five years ago. Um, but increasingly the, the leaders, the ones that, uh, are best managed, are planning for the future and planning for a deep carbonizing future.
And you, you see investors recognize that it's really hard to assess, um, the quality of management. And, um, some investors are using, uh, the, the sustainability performance of real estate owners as a heuristic for the quality of. Because that's actually measurable. You can see what the average energy star score across the portfolio is, what kind of capital plans they have, their capital plans recognize the building performance standards that are already in place and their plans.
Uh, and if you see a management team that's doing a good job on that, that's a good indication that they're doing a good job on other things as well that are maybe less measurable. Uh, and so, um, we see the top management teams are increasingly building this into their capital plans and really leaning.
[00:47:53] James Dice: Yeah. One of the things that I've been wondering about, and you're the perfect person to ask, is that with New York [00:48:00] going first and then other cities kind of following behind, what lessons have been learned in these kind of leading cities that are gonna be then implemented in the rollout in in the future cities?
Do you have any stories, any, any examples from, from these leading.
[00:48:17] Cliff Majersik: Sure. Uh, well, and we have more experience with the, the benchmarking and transparency laws that have been around. Uh, you know, one interesting story is from Chicago where they, um, have a irregular cycle. All these benchmarking transparency laws are on an annual cycle. Those, you know, buildings have to benchmark annually and submit it annually, and then those buildings that didn't submit, um, get reminders, uh, and potentially have, you know, to pay penalties if they don't.
Um, and that drives, um, investment in building. And, um, what we heard in Chicago was the building owner, the, the contractors, you know, the engineering firms, the ar, the firms that are doing energy audits, the firms that are manufacturing better lighting and other products to make buildings [00:49:00] better. They were timing, they're timing, their marketing, their timing, their whole sales push around these cycles.
Benchmarking and transparency loss cuz they know that every time that, you know, building owners get a reminder of their upcoming, uh, benchmarking requirements, every time those building owners get a reminder that they haven't complied with those, that haven't, that drives a big spike in, um, sales calls and in, in building owners calling up and looking for solutions.
And so, you know, it's a tangible example of the, the market moving power of even a benchmarking transparency law, which is of course a pretty light touch as compared to a building performance. So we do see, you know, real examples of market change, um, on the ground, um, in jurisdictions that have these policies.
We also see some lessons learned, you know, some policies, um, that have, you know, opportunities for improvement. And, and that's one of the reasons a number of jurisdictions that we're working on building performance standards came to us and they said, we want help. Uh, you know, could you write us sort of a model [00:50:00] law for building performance?
And we took all of the best elements of all the billing performance manage that had already been adopted and some of the lessons learned, opportunities for improvement. And we put that into, uh, this model of law, which is available for free download from our website, it's imt.org/bps. And um, and then we engaged with a number of stakeholders with equity stakeholders, folks, community based organizations, equity.
With, uh, jurisdictions themselves that were, uh, implementing existing laws, uh, as well as developing new ones, and importantly with building owners, uh, and service providers to say, all right, you know, how can we take into account real estate realities, uh, and create a law that doesn't just sound good, but will really make a difference on the ground and minimize unintended.
And for instance, we got 25 pages of comments on our model law, on our draft model law
[00:50:51] James Dice: Oh well.
[00:50:51] Cliff Majersik: round table, which is some of the biggest, that's just one of many, many groups that that gave us feedback. But you know, the biggest building owners recognize [00:51:00] that this policy is gonna be, you know, driving change across the many jurisdictions where they own buildings.
And so, you know, we had a really positive engagement and it improved the draft and, and it's a living document. It's constantly evolving to represent best. But recognizing that, you know, commercial tenants are an important part of the problem and they need to be important part of the solution. Uh, recognizing that affordable housing lacks, uh, capital and you can't require affordable housing to make improvements without providing the resources to improve.
But at the same time, we don't want to exempt affordable housing because that's leaving the resonance behind leaving them out of the. Of higher performing buildings. So there's a whole series of, um, lessons learned from these laws around the country, recognizing that you want to reward density, reward buildings that are operating long hours and, and, you know, getting a lot of production out of a limited footprint of building space.
So, um, a lot of these lessons learned are reflected in both our model [00:52:00] law and we've also recently published an implementation guide for how you implement building performance. And, and we're actually gonna be doing a series of, uh, webinars starting on January 26th, um, that go through, um, best practices for implementing building performance standards, targeted mostly at governments that are in the position of implementing, but also very valuable for service providers and building owners that, you know, are operating in markets with building performance standards.
[00:52:25] James Dice: Brilliant. Yeah. Such an important role you guys are playing. How can, um, anyone listening to this sort of get involved? Can they join the coalition or how, how does it work if, if people wanna make sure that their voice is heard or they want to. , you know, play some role in pushing legislation forward. How, how does that
[00:52:44] Cliff Majersik: Sure. Well, there's, you know, if, if you're a government, we'd love for you to join the coalition. Um, the, the main thing is that you're committing to. Uh, put in place equitable building performance standards, working with your frontline communities, uh, and you're gonna have building performance standards [00:53:00] or similar policies in place by Earth Day 2024.
And again, that's, uh, national bps coalition.org. There's a a place to, um, send an email saying, yes, we want to join the coalition. If you're a company, there are a variety of opportunities, you know, if you're in the business of leasing or um, being. A, uh, landlord, um, then encourage you if you're not already, to look at the Green Lease Leaders program to, um, get recognized for putting in win-win green leases.
Uh, also, you know, we have governments that are directly supporting our work, trying to push legislation, uh, and other, uh, just our best practices around decarbonizing buildings and, and equitable decarbonization. Uh, and we have something we call the corporate, um, the corporate. engagement Opportunity Program, CEO program.
Uh, and that is a program for companies that want to keep current on these decarbonization policies, on these opportunities and that want to support our work financially. Um, [00:54:00] and uh, and then, um, there are a number of companies that we work with on an informal basis. Um, governments always respond to employers, and if a company is in the business of making buildings better, whether that's through innovative products or technologies or services, um, their voice, um, is loud in, in at the local level.
And, and we've had a lot of success working with companies that say, look, I'm in the business of making buildings better. If you pass this law, it will create more demand from my services. I'll hire more people. Create jobs for residents. That's a message that, uh, legislators want it here and, and we work with companies to deliver those messages.
[00:54:39] James Dice: Uh, I'd imagine there's a lot of those people listening to this, this episode, so I apologize if you get a lot of people reaching out to you, cliff.
[00:54:46] Cliff Majersik: no, that's what I want. Send them my way.
[00:54:49] James Dice: Uh, floodgates are open Cliff's, Cliff's inbox. Um, well thanks Cliff, and, and thanks just in general to you and all your colleagues for this such an important [00:55:00] work, um, that's sort of upstream of a lot of, a lot of our listeners work is downstream of what you guys are doing to sort of make the, the. Uh, progress happen before, before they get involved.
So thank you. Uh, it's awesome. Let's end with some, just some carve outs. Any, any books, podcasts, documentaries, et cetera, that you have had, you know, have had a big impact on you lately.
[00:55:23] Cliff Majersik: Um, yeah, I, I really enjoy sort of on the ground practitioner perspective, so I like the house whisperers, um, you know, sort of analysis of what decarbonization is gonna look like for sort of ground level. Um, and I enjoy listening to the Energy Gang podcast. Um, you know, thinking about sort of the broader economy and the grid.
Um, and then just for, for a laugh, and, and I love, uh, Ted Lasso. I've been watching Ted Lasso, um, uh, and, uh, trying to model some of my behavior on some of what he. Does.
[00:55:57] James Dice: Yep. Yep. He's a, he's a model guy. [00:56:00] Uh, I have a friend that reminds me of Ted Lasso and he, he had, it had been a long time. Since I'd watched the show, then I just kept ribbing him, ribbing him, ribbing him. And you're like, you have to watch this. And he finally did. And he was like, yeah, now, now I understand why you wanted me to watch that.
Cuz he's like, it's like kind of like who he is already. Um, well that's cool. That's cool. I'll have to check out the house whisper because I feel like I need some. , uh, sort of therapy around how hard it's been to get my house to towards decarbonization with the, the local supply chain. Where I'm at is kind of like, it kind of feels like pushing a boulder uphill a little bit.
So maybe there's some episodes that will help me sort of work through that, that process. On, on the House Whisperer?
[00:56:44] Cliff Majersik: Yeah, I, I, I think we're gonna see rapid change in that space. The Inflation Reduction Act, which passed last year, is gonna create a ton of new business opportunities for heat pump installation and things like that. So unfortunately though, there's gonna be huge demand, and it may take a while for the [00:57:00] workforce and the contractor community to catch up.
[00:57:02] James Dice: Yeah. And for those of you that are wondering, that are listening to this and heard me talk about my water heater like a year ago, it's still in the same place because of exactly what Cliff just said. I feel like I'm waiting for my local supply chain to sort of catch up with. I just hope that my, my water heater doesn't die.
It's 18, 19 years old now, and I'm like, I really want a heat pump, but I, I, I need somebody to help me with it. So that's kind of where I'm at. I'm, I'm in a holding pattern.
[00:57:30] Cliff Majersik: There was a really cool ticker. It actually was the winning technology at the Verge Conference that where we saw each other, um, called Harvest Thermal, which is pairing heat pumps and water heaters,
um, so that
you can, um, store hot water and potentially in the future cold water at off peak times with, with low carbon electricity and use that to heat your house at peak times.
[00:57:52] James Dice: Makes.
[00:57:52] Cliff Majersik: and also of course, it's, you know, heating your house directly through the air at, at other times. So it's a great concept, um, and we need [00:58:00] to, we need that kind of innovation. Um, recognizing that, uh, that, you know, the, the ways we, we used to do things doesn't work, but there's ways to win win in terms of both for the climate and for lowering utility bills and for more comfortable spaces with innovative technologies.
[00:58:15] James Dice: Awesome. Well, again, thank you Cliff, and thanks for coming on the show.
[00:58:19] Cliff Majersik: Thank you, James. Great talking.
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"Investors are thinking about the long-term value and risk of buildings and recognizing that high-performing buildings are lower-risk, which means higher value. All investment is going to be centered on the risks inherent with buildings and making sure that those buildings are future-proof and able to prosper in a decarbonizing economy."
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âCliff Majersik
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Episode 135 is a conversation with Cliff Majersik, Senior Advisor at the Institute for Market Transformation, a nonprofit thatâs focused on regulatory and nonregulatory ways to push the economy toward decarbonization.
We talked about how market transformation works, the policy levers that we in the United States have for requiring decarbonization, and finally, we dove into how building performance standards work and what building owners can expect from those laws as they spread throughout the US and the world.
So without further ado, please enjoy this episode of the Nexus Podcast with Cliff Majersik.
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Note: transcript was created using an imperfect machine learning tool and lightly edited by a human (so you can get the gist). Please forgive errors!
[00:00:00] Cliff Majersik: Building performance standards are policies that actually require a minimum level of performance by buildings. And, uh, they apply to all buildings, even buildings that aren't polling, building permits. So they compliment building energy codes. Uh, they apply to the 98% of buildings that aren't being built each year.
Um, that may, if not for these laws, might do everything exactly this year as they had last year and 20 years. So they require that existing buildings have to improve on quantitative basis. So a building performance standard can require improvement on any metric, any performance metric that can be objectively quantified.
And the ones that that we see, they're 11 building performance standards in place around North America. And, uh, a lot of those deal with greenhouse gas emissions. A lot of them deal with energy use intensity. Um, some of them deal with energy star scores. Um, they, requiring that the buildings have to achieve some minimum level of performance by a set date, and the performance [00:01:00] requirements ratchet up over time.
[00:01:35] James Dice: As we impact on one of our most popular episodes ever. Episode 44 with the legendary John petsy sky spark is a comprehensive software platform for connecting, storing, analyzing, and visualizing data from devices and equipment systems, sky sparks, automated analytics, KPIs, energy, and greenhouse gas apps.
Turn your data into actionable intelligence, providing improved performance, reduced [00:02:00] downtime and operational savings. Head over to sky foundry.com for insightful white papers, case studies and blog posts. As well as the link to sign up for a free demo.
[00:02:11] James Dice: This episode is a conversation with Cliff Majek, senior Advisor at the Institute for Market Transformation, a nonprofit that's focused on regulatory and non-regulatory ways to push the economy towards decarbonization. We talked about how market transformation works, the policy levers that we in the United States have for requiring decarbonization.
And finally, we dove into how building performance standards work and what building owners can expect from those laws as they spread throughout the United States and the. So without further ado, please enjoy this episode of the Nexus Podcast with Cliff Majek.
[00:02:46] James Dice: Hello, cliff, welcome to the Nexus Podcast. It's great to have you here. Can you start by introducing yourself?
[00:02:52] Cliff Majersik: great to be here, James. Well, I'm Cliff Majek and I'm the a senior advisor to the Institute for Market Transformation. Uh, a [00:03:00] nonprofit in Washington DC that's focused on building performance as a way to fight climate change and benefit people regardless of where they live, work, and. And, um, I have been at IMT for more than 20 years now.
I have worked with a variety of jurisdictions, variety of companies, you know, from the early days when we were sort of narrowly focused on energy efficiency to today when we looked much more broadly at building performance and how that plays into decarbonizing the economy and, uh, advancing equity across.
So it's been an interesting ride over the last 20 years and, uh, I'm excited for what the next 20 years will bring.
[00:03:39] James Dice: Awesome. You might be surprised with this, but I, I would love for you to go back before those 20 years and talk about your personal background, like how'd you get into this space in general.
[00:03:51] Cliff Majersik: Sure. Well, I actually had a pretty, uh, wild ride getting here. Um, I went to Williams College focused on [00:04:00] political. and my first job outta college was working for the New York District Attorney's Office listening to Wiretaps of Mafi. My first boss was Elliot Spitzer. Uh, and I actually testified in grand jury against, um, some, uh, Gambino bosses, um, who, uh, ultimately, um, uh, had ended up, um, feeling the consequences of the, uh, judicial system.
Um, so I've, uh, did that. I went on and, and ended up working. Lobbying for, uh, improved superfund, uh, toxic cleanup laws. I moved here to Washington DC to do that and went on to the, uh, conservation International, where I focused on, well, actually before that I started an internet software company. Um, and, um, uh, sold out of it.
It was venture backed. Uh, I went to, uh, conservation International, where we, I focused on working. Um, the e-commerce industry to try to reduce the impact on, [00:05:00] um, climate and biodiversity. Uh, and uh, then I came over to IMT because I wanted to focus more on an area where I could really focus on the business case, um, for improvements and energy efficiency, which was the main focus at that time.
There's a really strong business case. You get a great return on investment from focusing there. So not only does it help society, but it helps the bottom line of the companies that are seek.
[00:05:24] James Dice: Got it. Brilliant. So, Um, I'd love to circle back on the software company. What was the, what kind of software did you guys build and does the company still exist?
[00:05:34] Cliff Majersik: it still exists. At the time I was doing it, it was doing intranet software, um, helping companies to set up software, um, to communicate internally and trade associa. We sold that off, um, to, um, a sort of high flying software company. And, um, then it, uh, after I left, after I cashed out, it's now focused on secure instant messaging for the Department of Defense [00:06:00] and other sort of, um, clients that need secure instant messaging.
Um, but that was not the focus at the time that.
[00:06:06] James Dice: fascinating. Let's go into I M T. So. Institute for Market Transformation. Can you just talk about in general, what is bargain transformation and sort of how does it, how does it work?
[00:06:19] Cliff Majersik: Sure. Market transformation is a term that came out of the utility efficiency world. So it's um, set up in contrast to like rebate payments, the things that people most often think about when they think about utility. Those, um, people will do the right thing when they're getting paid to do the right thing, but often they'll continue to do whatever they were doing before once those payments go away.
Market transformation is different. It's permanently changing the business cycle. It's, it's identifying ways to make things in someone's business interest to do the right thing, even when they're not getting paid to do so. So, um, it's, uh, includes things. Laws [00:07:00] that require improvement, but also, um, ways that you can restructure the market with information.
You can better align incentives, um, such that, um, business will change permanently. And, and there's, you know, it's not, uh, in any way at risk of backsliding if funding goes away. Uh, and so we were founded to focus on market transformation. Some of the things that we looked at are, for instance, the, the ways that property valuation didn't properly account for building.
And by building, by valuing a property better, by reflecting its true financials, the the revenue stream is gonna result the risk that's, uh, inherent in poor performing buildings. It just becomes a lot more profitable to invest in high performing buildings. Uh, and we worked with the appraisal institutes and, um, on federal legislation to try to better align the reality of building performance with how it's valued.
And there's been some real progress there and there's still a lot more room for, for improvement. But that's an example of market transformation. That's in no way [00:08:00] dependence on utility or other.
[00:08:02] James Dice: Totally. I wasn't planning on going into that, but can we talk about that for a second? How, you know, in, in terms of where buildings are at in terms of, you know, transactions, res reselling buildings, um, how often are, is building performance being taken into account today and is there like a roadmap that you guys have that.
[00:08:23] Cliff Majersik: Sure.
[00:08:23] James Dice: of promotes that being part of the equation,
[00:08:26] Cliff Majersik: Well, and it's most basic, um, certain parts of building performance are, are, are usually taken into account when you're talking about commercial buildings. There's a very different way of valuing commercial, building from say, a single family home. Um, there's, you know, and when you're thinking about appraisal, which is, doesn't exactly line up with the way that buyers and sellers think that it does have some overlap.
There's broadly, sort of three ways to value a, a home or. Um, there's the sales comparison approach where you just look at similar homes or billings sold and, and you figure out all, well, let's make adjustments to us comparable, and that's how much this one's worth. That's what people [00:09:00] usually do in single family, and that often doesn't account for billing performance pretty much at all, which is a, a real, uh, market barrier.
Uh, and then there's the, the, um, replacement cost approach. How much would it cost to sort of build this home or building again, that's the least used? In the commercial space, the main method by far is the income approach to valuation. Uh, and there you're looking at, you know, what's the net operating income of that building, how much cash is it throwing off every year?
Uh, and that will reflect things like utility bills. It will also reflect things like vacancy rates. And we know that high performing buildings have lower utility bills. They also have lower vacancy. And they have higher effective rents. Um, so it, that does tend to value building performance to a certain degree.
But often what you have unfortunately is people who will be like, oh, well this building has a really, a really low vacancy rate. I'm just gonna adjust that back to the mean. Uh, and, and now you've just [00:10:00] eliminated all of the benefit of this high performing. . So it's important to understand, no, this building has a better lower vacancy rate because it's a high-performing building and you need to talk to the tenants maybe to understand that, that it's more comfortable to be in, that they're reporting their greenhouse gas emissions to their shareholders and investors, and they want to be in a high-performing building.
But a lot of times, uh, buyers, investors, appraisers don't take that extra step and they end up sort of writing off the value that's been created by this high performing building. So we're trying, we've been trying to educate the. Um, to recognize that high-performing buildings are, are better buildings, uh, and, you know, tenants and others say, you know, I have a high performing company.
I have high performing employees. Why wouldn't I want to be in a high-performing building? And they're willing to pay higher rents and, and higher, um, purchase prices for those buildings.
[00:10:49] James Dice: absolutely. Yeah. Thank you for that little, little deep dive into that, that sort of side topic. But I'm sure there are tons of different topics that you guys produce education [00:11:00] around. Um, that are just like that. Can you talk about a, a lot of this is resonating because the, that's the way sort of, we at Nexus Labs sort of think about our role.
How do we educate and help these, you know, long term, you know, consistent market transformations happen. Um, you guys are obviously doing it on a, on a different, different scale. Um, the. The way that I think about the smart buildings ecosystem, which again sort of overlaps with building performance or energy efficiency or decarbonization a little bit, is that there are a bunch of different roles.
And we are all showing up to create that market which must transform. Right. Um, so how do you think about all the different roles of all the different players inside of each sort of market ecosystem? So there's like, obviously policy makers, um, utilities, building owners, technology providers and startups.
Um, how do you think about all of those people coming together to sort of make transformation happen over the [00:12:00] long term?
[00:12:01] Cliff Majersik: Well, that's exactly right. That's what we need. All of those players have important roles. Um, and, um, what we need is for every step of every major decision building performance needs to be factor. Uh, and policy needs to, uh, align. Um, you know, there are all kinds of externalities where, you know, the most obvious one is carbon pollution.
Currently in the United States, you know, there's no cost to the polluter of putting carbon pollution into the atmosphere, and that's an enormous burden that is created for the world, including the us. And so policy needs to, uh, align incentives address external. , uh, and then every person in, in the process from, you know, the, uh, initial, um, person at, at a tenant say, who's writing the, the specs for what space we're gonna lease.
They need to write in that they want a high performing building. . Then the, the realtor who's, uh, showing them space where they can lease needs to be able to communicate to them and [00:13:00] educate them about, okay, here is a high performance bill. Like here's why it's high performance. Here's how much lower the utilities will be, how much lower the greenhouse gas emissions if you're occupying the space.
Um, and then the lawyers, uh, who are gonna be writing that lease. Need to, uh, understand that there's win-win opportunities. Green leasing, where both the landlord and the tenant can come out ahead when they've aligned the incentive so that when the building is performing better, both of them prosper. Uh, and that needs to be written into the lease.
Then the, the, um, property manager needs to do a job of communicating that to the tenants existing, uh, and new. Um, and the building engineer needs to be operating the building for maximum ef. Uh, thinking about things like shifting loads off-peak times with lower carbon and lower prices, the utilities need to be pricing in so that, um, they're rewarding building, uh, occupiers and owners that are using, um, electricity when it's low carbon and when it's not stringing the grid and risking, um, [00:14:00] risking blackouts.
Um, the, uh, there needs to be either the engineer on site or or an external expert that's coming in and systematically looking at individual buildings and portfolios of buildings and finding where the best return on investment opportunities for making those improvements. And that works in, in tandem with the utilities, rewarding building owners for shifting load to off peak.
You have to have investors that are thinking about, you know, what is, uh, the long term value and risk of this building and recognizing that high performing buildings are, are lower risk buildings and, and deserve lower cap rates, which means higher value. Um, and building owners that are smart enough to, to seize all these opportunities, to improve building performance, to attract and retain the most valuable tenants, to, um, draw investment from investors that are farsighted and, and, you know, they have sustainability commitments of their own, their ESG funds, or just increasingly in the future, all investment is gonna be thinking [00:15:00] about the risks inherent with long lived assets like buildings and making sure that those buildings are future.
That they are gonna be able to prosper in a decarbonizing economy. All of that comes together. Um, and you, you have, uh, you know, a huge engine for economic growth and, and climate benefit. But if any piece in that long chain is broken and, and right now most of the pieces are broken,
then the system kind
of breaks down and people are dramatically under underinvesting in high performance buildings as a con.
Of those barriers, of those breakdowns, lack of information flow, misalignment of incentives, you know, externalities that, that are have not been addressed. So there's a lot of things that need to be fixed, but the good news is that when we do fix them, it's gonna unleash a, a wave of investment and, and really positive returns.
And we need to see that. We need, we need to see new millionaires and billionaires being created from fixing our [00:16:00] buildings and, and, and decarbonizing our. Policy makers need to recognize that, uh, and, uh, you know, entrepreneurs and innovators need to be looking sort of two or three steps down the road and positioning themself for, as the new policies and the new market realities fall into place and you get rewarded for these high performance buildings and these new technologies.
So they're gonna.
[00:16:22] James Dice: Wow, that's such a great, great answer. We're gonna have to chop that up into its own little, little clip like Cliff's mic drop moment about all the different problems that need to be solved. I love that. Um, I love that answer too, because when I post about sort of what do we have to do, I like to post on LinkedIn and get a lot of feedback, a lot about what do we gotta do, what obstacles are there, what ideas do you have, what tactics do you have around decarbonizing buildings?
And one of the things I get, there's a certain faction of the industry, a certain faction of this audience that's listening to this right now that would. [00:17:00] You know, regulation is our only hope, right? The only way that we're gonna decarbonize buildings, if someone says they must be decarbonized or else business no longer can continue, right?
And I struggle with that a little bit because it doesn't take into account all the other, I mean, you listed out just like 20 different things right there, but it doesn't take into account all the other things that are not regulatory, right? You still need the supply chain. You still need the workforce to implement it.
You still. Um, like you said, someone that's deep inside the specification, uh, process to make sure that this line item and the spec gets in there. Right. Um, so can you talk about like it's regulation and I, I feel like, is what I'm hearing you say.
[00:17:43] Cliff Majersik: That's exactly right. It's regulation and I mean, we know that there has been improvement. Buildings are getting better, you know, information is flowing better. Those are getting a little bit more. But when you look at the bottom line, when you look at greenhouse gas emissions across the economy or across our built environment, [00:18:00] they're moving in the right direction but not nearly fast enough.
We need to do something very different, you know, expecting that we can just do as we have done in the past and get where we need to go is, is just unrealistic. We need a, we need a level of improvement across our entire economy that has rarely been seen in the built environment, in any jurisdiction at any time.
And yet we're going to need to consistently get that level of improvement every year. Uh, and so we have to pull pretty much every lever that's in front of us. And regulation is clearly one of them, but it's not enough. I mean, you can, you can write the best law in the. And, uh, the market needs to act on it.
You need to have innovators that, that see the opportunities that that regulation creates opportunities for them to provide new services and products and to prosper. You need to have, you know, investors, brokers, appraisers, everybody else in the value chain needs to absorb this new reality that's created by the regulations and by just the evolving.
And [00:19:00] look ahead and, and, and connect the dots and see, alright, this asset, which we used to think was sort of top of the line, it's impaired. It's, it's not performing as well. And either it's gonna have to have major improvements or it's gonna have to be completely repositioned, or it's just, uh, it's just, you know, a much less valuable asset than we used to think.
Uh, and this other asset, which maybe was neglected, is it's a diamond in the ref and it's much more valuable than we thought it was. And once that thinking pervades, then that's gonna drive billions of dollars of investment. The New York City, uh, building performance standard law, local law, 97, that's been projected to drive 20 billion of investment in buildings over a 10 year period.
And that's just one city across the country. And that's gonna, there're gonna be many, many people. Make a lot of money from owning better buildings and from providing the services and products to make buildings better. Um, so regulation is a part of the picture, but it's just the just one piece of a big puzzle.[00:20:00]
[00:20:00] James Dice: Totally. So now that we've sort of like set the context, I do kind of want to talk about regulation . Uh, and, and, and I think when you and I met at the Verge Conference in San Jose in the fall, we, we kind of, we had the idea we were sitting at, it was kind of a serendipitous moment. It was like, I think we had met before, like a long time.
And then we're sitting in this couch and I think both of us were just like taking a break. And it was like, oh, I was like, you're cliff or whatever happened. I don't know exactly how, how it happened, but uh, it was very serendipitous to have been the conversation we had around building performance standards.
And it'd be fun to talk about kind of where things are going. So before we get into building performance standards, I'd love to talk about kind of all the policy. le you call them levers, all the different policy levers that we have to sort of push the market towards decarbonization. So I'm gonna kind of, kind of walk us through the different ways, um, and I'll give you a chance to add to them.
[00:21:00] But, um, The first one is on energy codes and. . I wanna start with a little like aside for people that don't understand kind of where energy codes fit, can you talk about first why energy codes matter?
And then get into like the status of the energy codes and kind of where we need to go. Is it a good, is it good news right now? Bad news where we need to head, but first start off for people that like don't know why energy codes matter. Can you talk, can you talk a little bit about that first?
[00:21:27] Cliff Majersik: So energy codes are, uh, one aspect of building codes, uh, in most jurisdictions around the country. Um, there are building codes which establish sort of minimum standards for any new construction, uh, major renovations and certain other improvements in buildings. And, uh, those become unfortunately kind of the, the standard construction, um, recipe.
Um, I say unfortunately because building codes established the minimum performance that's permitted under law, and [00:22:00] unfortunately a lot of builders treat that as both the minimum and the maximum. They're just building to the code. Um, and energy codes, um, are codes that were originally established, um, you know, more than 30 years ago.
Um, to, uh, protect the occupants of buildings, um, mostly from high utility bills. If you, uh, have a really badly built building, you're gonna have to pay a whole lot of money in electricity and, and often gas. And that doesn't serve anybody. And, and, um, people that are buying a home or even buying a commercial building, they shouldn't have to be engineers and experts on building performance.
They should have protection from the law, just like we have other consumer protect. You know, a car shouldn't blow up when you drive it off the, the lot. Well nor should a building be leaking massive amounts of air and, and driving up huge utility bills and being uncomfortable. So energy codes, uh, which are, uh, building energy codes were developed to protect, uh, buyers of buildings and make sure that they had buildings [00:23:00] that function properly that wouldn't be excessively expensive for them to operate.
And then more recently, Um, we recognize that buildings are a huge driver of greenhouse gas emissions, uh, buildings, um, account for more than the third of all greenhouse gas emissions in the United States. Um, and that's, uh, along with transportation. Those are the two largest sectors, uh, driving our greenhouse gas emissions.
And, and so there's a recognition that building energy codes an important lever for improving, uh, our climate performance of our buildings and our. And that means that, um, there's been a, a real push to have building energy codes, uh, pushing buildings to perform better, um, pushing towards, uh, net zero carbon buildings, which, uh, means in part using no fossil fuels on site, uh, minimizing the amount of electricity that you're using as well.
And also in the future, and in most cases, billing codes aren't doing this yet, but they are starting to do this in ca. Pushing towards [00:24:00] when they are using electricity, using electricity when there's lots of low carbon electricity available. So building codes, um, are incredibly important for decarbonizing the built environment, but they only apply to buildings that are newly built, uh, major renovations and, and certain other, uh, changes that require building.
Uh, and what that leaves, you know, you're, you're typically, you're only adding one 2% to your billing stock every year. That leaves the other 98% of buildings that aren't pulling, building permits that year. And that means that, uh, we need to have policies that address those and we refer to those as existing buildings, and that's where the real big money is in terms of opportunities for improvement to those.
When you have 98% of buildings that are not addressed by building codes, that's 98% of the opportunity in many ways, that is available for, for industry, if you can drive improvement in those existing buildings.
[00:24:55] James Dice: Yeah. And, but, but for those one to 2%, it's kind of [00:25:00] the best time to make it happen, right? Because a lot of times when a, a, a building gets built, you're not, you know, the developer or the new owner after it's developed is not planning on doing a whole lot of upgrades for a while.
[00:25:10] Cliff Majersik: That's right. And in fact, the best time. The very beginning, the best time to think about building performance is before you've even thought about who you're gonna hire to design the building. Um, a best practice is to set really high standards. This we want a really high performing building, and we're gonna put that out into the RFP or anything else that you're using to select the design team.
And you're only gonna get design teams that know how to build high performance because some design teams don't know how to build high performance building. And then they're gonna charge a huge premium because it's gonna be change orders and trying to teach themselves as they go. But if you set the, the goals at an aspirational level from the beginning, often you can get very high performance buildings at little or, or no additional cost.
[00:25:52] James Dice: Got it. So last thing on energy codes, how does, how do you guys look at like the current status of energy codes as [00:26:00] imt? Like is there still a ton of work to do there or is it kind of on, on its way?
[00:26:04] Cliff Majersik: There's still a ton of work to do. There's a ton of, we have model energy codes that are developed by, you know, the International Code Council and Ashray, um, and those Marvel codes are making good. Um, they have a long way to go still. Um, and they're, uh, increasingly you have jurisdictions that are pushing to go beyond the best model codes.
Um, but where the big opportunities are is lots of jurisdictions that they're using, you know, 10, 12 year old model codes. And, um, those jurisdictions are leaving a lot of money on the table with low performing buildings that are, uh, being built in compliance with the code. So they need to improve their codes and also you have a big problem.
Poor enforcement and compliance with energy codes. So those are the, the biggest opportunities are in raising the floor, the, the jurisdictions that have poor building codes or as rare cases, no building codes at all. Um, and, um, having better [00:27:00] enforcement and compliance with those codes.
[00:27:01] James Dice: Got it, got it. Okay. Next topic is around electrification, which is similar. Right. Um, a lot of codes are requiring, and you tell me if it's similar, I guess, but my understanding. There's a lot of codes around the country. Um, you know, municipalities close to me, um, in Denver requiring electrification in new buildings, um, or major renovations retrofits.
Um, where is that at? And kind of what's the, what's the roadmap that we need to go on there?
[00:27:31] Cliff Majersik: Well, ultimately we would like to see, you know, all new construction, be all electric. Um, and there are a handful of, um, of uses that may take a few years to, um, make all electric in the near term. Things like backup power for hospitals and that sort of thing. But, uh, you do see a, a several jurisdictions, including places like Denver and New York City, Washington.
That through their building codes, California are saying, look, [00:28:00] new construction is gonna have to be all electric. Um, and, and a little bit more difficult is major renovations, but many of those jurisdictions also are requiring that major renovations usually with a little bit of a lag. Um, also we're gonna have to be all electric.
Uh, and that's, um, certainly key. But again, that leaves out 98% of buildings that have already.
[00:28:19] James Dice: Totally.
[00:28:26] James Dice: As we covered in our recent blog series on the five vital roles, smart buildings require engineers and engineering that allows OT and it systems to seamlessly and securely integrate with each other. And integrate with common platforms. Creating a successful building intelligence strategy entails translating the owner's goals to outcomes, use cases, intelligent building technologies and enhanced MEP systems.
To learn about what JB and B is calling MEP 3.0 and the value of building intelligence design. Check out our friends at JB and B and specifically . Their [00:29:00] podcast conversation with Wiredscore at the link in the show notes.
[00:29:04] James Dice: Okay. I guess we're gonna move on then Outside of that one to 2% of new buildings, Talk about existing buildings, and maybe you could tell me with the difference between these two categories, but the next two categories I had would, would be benchmarking and performance standards. And some, and some municipalities have them, or, or, you know, states, um, countries even have them as like one program.
Right. Um, so can you talk about those as sort of a, a category in and of themselves?
[00:29:33] Cliff Majersik: Sure. So, uh, benchmarking and transparency laws are, are pretty new. Um, Australia was perhaps the first. Australia and Denmark, I think were two of the first. Places to adopt them, um, back, uh, you know, 20 ish years ago.
[00:29:48] James Dice: And we did a, a episode about a year ago with, um, the neighbors program, sort of talking about the, the transformation that's happened there.
[00:29:56] Cliff Majersik: yeah, neighbors Is is the, uh, Australian program and it's been [00:30:00] enormously successful. Uh, and it was one of the models I helped write the first benchmarking and transparency law here in the United States, uh, in Washington DC which passed back in 2000. And we were looking at Denmark in Australia as, as models for how to do that.
Uh, and then in rapid succession, other jurisdictions followed Washington DC's lead, and in fact, New York passed its law after DC but ended up implementing its law before DC's was implemented. And so New York was also very much of a trailblazer. And, um, now you have, you know, 40 some jurisdictions around the country, including states like California and Washington and Colorado and Maryland and New Jersey that have these benchmarking and transparency laws.
And what these laws say is that buildings have to rate how well they perform, uh, using the Energy Star system, which is, uh, the American system run by the United States Energy Environmental Protection Agency, epa. Um, and it's a free tool that's been widely used on a voluntary basis going back to the late 1990s.
And, uh, it's, [00:31:00] uh, compares buildings to their peers and it adjusts for things like weather and also how many people are in the building, how, what are the operating hours of the building. So it's really giving you an apples to apples comparison of buildings, uh, against themselves over time and against their peers.
And it gives buildings a one to 100 score. We're we're 100 is best and one is. It also measures things like greenhouse gas emissions and energy use intensity. Um, so these benchmarking and transparency laws require that buildings have to use that, that free system, they have to generate that one to 100 score and other information like greenhouse gas emissions usually, and publish that for the world to see.
So in all these jurisdictions, you can go, uh, Uh, see a map of all the buildings in, uh, the jurisdiction, I should say most of them. Occasionally there are some where you have to sort of downlight a spreadsheet of addresses and scores, um, but you get to see how these buildings are performing. Is this a, a, a great building, a, a 99 building or a really poor performing building, a two or a three, for [00:32:00] instance.
And, uh, that is informing the market so that if you're going to lease a building, if you're going to invest in a. Uh, you're have a virtuous cycle of competition where you want higher performing buildings. You're willing to pay more for a higher performing building, and that gives the building owner an incentive to invest, to make that building better so they can attract and retain tenants so that they can get that investment.
So that's benchmarking and transparency laws. The first one, as I said, was in DC in 2000, uh, and eight. Um, and they've been steadily growing with more and more jurisdictions adopting. . Um, but they don't require performance. They require disclosure of performance. But you could disclose that you have an energy star score of one, the worst score possible, and that's it.
Plus you've, you've, um, complied with the law, uh, and that they produce, uh, improvements. You know, many sort of studies down that sort of two and a half percent per year reduction in energy use when you have these benchmarking and transparency loss. But [00:33:00] that's not enough. That's not on the, the PACE that we need to meet the decarbonization goals.
Many jurisdictions have goals around like 50% reduction in greenhouse gas emissions by 2030. Uh, you know, net zero by 2050. And nothing that they had done, including these laws had put them on PACE to achieve those kinds of commitments. And so they needed something stronger that would, um, accelerate the rate of.
and that led, uh, jurisdictions, again starting with Washington DC in 2018 to adopt building performance standards, which not only they're built on top of these benchmarking transparency laws, they use the Energy Star program to measure how well buildings are performing, but they also set minimum performance requirements, um, with consequences for not achieving those minimum levels of.
[00:33:49] James Dice: Totally. And you said 40 state and local governments ish are now on board with that [00:34:00] higher level of stringency. Is that kind of where we're at today?
[00:34:02] Cliff Majersik: More than 40 jurisdictions have these benchmarking and transparency laws. Collectively, it's uh, well over 11 billion square feet of space. So it's a, a real significant part of the economy, and it also tends to correlate with some of the highest real estate. Places like Austin, Texas, and, uh, California and New York and Washington and Denver, and Chicago, Maryland.
So you have a lot of high value real estate areas that have these loss as well as, you know, places, um, that are, you know, Kansas City, which is a great, um, market, but you know, there's some more value to be had there.
[00:34:37] James Dice: Yeah, we, we hosted a Nexus Happy hour in St. Louis last week, and we had the city's benchmarking administrator, benchmarking performance administrator, Malachi. He was at the happy hour. So, uh, shout out to the, the St. Louis folks. Um, cool. So, Those are the kind of the four energy codes, electrification, benchmarking, performance standards that [00:35:00] I kind of have always thought are, you know, the, the key to this.
Right. Um, what other ones, what other, what other categories are important in terms of policy levers that we should touch on before we kind of zoom into to performance standards?
[00:35:14] Cliff Majersik: Sure. Well, we talked broadly about building performance policies and that includes everything from the most common and perhaps the lightest touch of benchmarking and transparency laws all the way through, um, the most powerful, um, of Billy performance. But in between you have things like, uh, audit requirements and re building retuning requirements, um, where you're requiring periodic energy audits to, I identify, uh, opportunities to improve the performance of the building.
And typically, um, you are exempting from that requirement, very high performing buildings and similarly retuning laws where you're, uh, looking at, you know, the, the highest performing buildings are exempt. The other buildings have to bring in engineers periodically, like a five year. To look at opportunities to improve the performance of the building.
And [00:36:00] that's about, not about capital improvements, that's about making sure that the systems are operating as designs and, and un Unfortunately, very often buildings are not operating as design and so you can get a really good return on investment from retuning. Um, and so those are a couple of policies.
There's also building labeling, uh, New York City and Chicago have these. Uh, and that actually involves required buildings to display in their lobby. Um, a letter grade, or in the case of Chicago, a number of stars with four stars being the best, which actually winds up with the Chicago, uh, flag. Um, and that's a, a, a more powerful message to the market so that anybody walking through that lobby, including tenants, Is immediately sort of alerted to the performance of the building, similar to letter grades for, um, for restaurants, uh, you know, sanitation that places like New York City have had in place for a long time and do drive behavior.
I mean, you see, I, if I see a building, a restaurant that has a sea grade, I'm usually gonna keep on walking. I'm gonna look for a restaurant with an A Grade. Um, and [00:37:00] similarly the hope is that, and I think we're seeing some early indications. Tenants and others will similarly want high performing buildings.
When they see it right there in the lobby, they'll ask questions of the owner and that will prompt the owner to make improvements.
[00:37:12] James Dice: Totally. How about things like, um, . I know, I know. A big piece of even enabling a benchmarking program is getting access to the data itself. Are there any, um, is there any legislation around simply making, forcing the utility to share data in a, in a meaningful, accessible way?
[00:37:32] Cliff Majersik: yes, there is. Um, it's certainly a best practice and we have another jurisdictions that have done that either through legislation or through action by the regulator of the utility. Usually called the Public Utility Commission or Public Service Commission requiring the utilities to do that and, and, uh, rewarding them for doing that.
Um, so, and then you have a number of utilities that have done this voluntarily. Sometimes they did it because they were required to do it in one jurisdiction, and they said, you know what, we're just gonna do this across our entire [00:38:00] territory, which may span several states. And so there is a map that the US EPA maintains where you can see all the utilities that will provide whole building data access to building owners.
And this is much more of an issue in tenanted buildings where the tenants are receiving utility bills directly from the utility, and the building owner doesn't see those bills at all. Because in order to EnergyStar benchmark a building, you need to know how much building is being used across the entire building, including the tenant.
Is, and that means that you need to put data from all of the utility meters in that building into the energy star system. And so it's easy if you own the building and there's only one meter, and then you just take the data from that meter, you take the data from your utility bills and you put in on a monthly basis.
But if you need to get the data from your tenants, that can be a chore, especially in in apartment buildings where you can have, you know, a hundred tenants and it's just impractical to try and get data from all of. So in that context, uh, having a utility that will take all the data together for all of the, [00:39:00] um, occupants and tenants in that building, uh, and upload it directly into the Energy Star system, that's a huge benefit.
It makes it much more practical for building owners to know how they're performing so that they can, uh, look, uh, across their portfolio. It's the opportunities for good investments and also so they can comply with these benchmarking laws and, and other laws that look at billing. Ones
[00:39:21] James Dice: Totally. But you're saying there aren't, there aren't like actual policies, kind of
[00:39:27] Cliff Majersik: are laws and frequently a jurisdiction
at the same time that they pass a benchmarking law will require the utilities to provide the data. Uh, one of the challenges is that a lot of these benchmarking laws have been passed at the local level, but utilities are usually regulated at the state level.
So that's one of the, the reasons that why we're particularly eager to work at the state level because the. Um, regulate the utilities and it's very easy for them to require utilities to provide this data.
And then
there there's also requirements around providing real time data. Uh, and this data is very valuable, um, for like solar [00:40:00] installers when they're making the business case to, um, owners about, um, why they should invest in solar panels on their roofs, say, Um, and so there are a lot of use cases for this data.
This data belongs to the rate payers. It's the people that are paying for the utility service that own that data. But, um, sometimes utilities treat it as like, no, you know, we want to keep this in a black box and monetize it and not make it easy for the owner to share with anybody else. So, um, liberating this data, um, and enabling it to drive transformation in the buildings and in the market is a big part of our strategy and we've had some success.
[00:40:36] James Dice: Great. Last question is around leasing. Are you able to actually sort of work the green, you guys do a lot of work in green leasing. Are you able to work those um, pieces into these different laws?
[00:40:48] Cliff Majersik: Um, typically leasing is something that isn't really regulated. It's a, you, you, you know, governments of course, uh, lead by example with their own leases. So we want, and we have a lot of [00:41:00] governments, including the, the federal government, um, that, uh, have green leases where they're saying, you know, we want X, Y, and z, um, uh, in the lease so that the landlord and the tenant are gonna be both performing better when the, the, uh, building is, uh, high performance building.
Um, but, uh, we have not seen, you know, jurisdictions that have said when you have two private parties, a landlord and tenant that are signing. That they need to have a green lease that's gonna align their centers. But what we are seeing is things like building performance standards, which, um, have real consequences for non-performance.
And if they're designed properly, those consequences will flow to the people that are driving low performance in buildings. And that's not just the owner, the tenants play an important role, especially commercial tenants. So you, you want to have, and we've, our model, we have a model building performance standard.
Um, which, uh, aligns incentives. So both the tenants and the landlords have skin in the game, so they'll want to set performance [00:42:00] targets. Alright, this building is required to perform this. Well, let's develop a plan for how that building will perform this well. And then let's allocate responsibilities. And the owner, of course, is gonna be the leader in doing that.
And the owner's gonna be making improvements to the buildings, but the tenants through their own behavior and through providing access to their. and through potentially helping to finance improvements to the building, they're gonna be an important part of the solution as well. And everybody needs to be incentive to work together to have high performing buildings.
So while these building performance standards, if they're designed properly, they align incentives between the landlord and the tenant, but they don't directly require anything in the lease, but it creates a win-win opportunity. Even without that, there's a win-win, but it creates an even bigger win. For landlords, tenants to sign these green leases, um, that help them work together and to, to have really good communication.
[00:42:49] James Dice: Makes, makes a ton of sense. So let's zoom in on, um, building performance standards itself a little bit. So we started to a little bit there. Can you talk about, um, [00:43:00] you know, we talked about, you know, 40 plus. Jurisdictions. Um, if I'm a building por like a portfolio owner and I got buildings everywhere, and I, I'm not sure quite sure how this is gonna impact me, what would you say to them to help 'em understand where this is headed in the future?
[00:43:18] Cliff Majersik: Well, what I would say is, um, buildings are, you know, the, uh, one of the top two drivers of greenhouse gas emissions. You have jurisdictions around the country that have committed to decarbonize their economy, and buildings have to be a foundational part of that. So the buildings are going to have to perform.
and, um, the jurisdictions are going to push to make that happen. And building owners need to be part of that solution. And they need to, to be working, to, um, make sure that these policies recognize real estate realities. Um, and these policies are gonna happen. You already have them in, you know, 11 jurisdictions around North America, including some of the biggest jurisdictions like New York City, um, like, [00:44:00] um, you know, Boston, Washington dc, the states of Colorado.
And, um, Washington State and, and Maryland. So you, they're already in place in lots of places. You have also, um, president Biden has a building performance standard coalition, which he announced back in January, 2021. Um, sorry, January, 2022. And, um, that includes 37 jurisdictions, including other big ones like California that are all committing to either they already have billing performance standards in place, or they're committing to have them in place by Earth Day of 2024.
Uh, and so you can look on at that map, uh, which is national bps coalition.org and see all those jurisdictions. But even if you own buildings that aren't in any of those jurisdiction, This is the direction the market is going. This is the direction governments are going. So you need to plan, you need to future proof your buildings by planning to have these policies in place everywhere.
So adapt. And it's, you know, companies typically have a single policy in [00:45:00] place across the board, across their portfolio. So gov companies need to govern their portfolio as though there's building performance standards everywhere and, and be pushing their buildings towards high performance, develop long term capital improvement.
For all of your buildings to be decarbonizing over the next 15, 20 plus years. And, um, and you'll be rewarded increasingly, you're gonna have these policies in place, but you're also just having investors that are recognizing that high performance buildings are a better opportunity, a better business opportunity.
They're willing to, to have lower capitalization rates, pay higher prices for these buildings. You have tenants that want these buildings, so you. Design your, your corporate policies and the expectation that these building performance standards are gonna be everywhere across the country. And know that even if you know they take longer in some jurisdictions than others to materialize, you're still positioning yourself for the future into profit.
[00:45:54] James Dice: Totally, and this is something I, the, the capital plan piece is something I've talked about [00:46:00] on, on the, the show quite a bit, and I, I've been, I've been pleasantly surprised with the, the progress lately in terms of hearing a lot of building owners talk about. Okay. Are our exact plans. Um, we couldn't say that like a year ago really.
It was mostly like, we have this target and we know these standards are happening and we know that we're gonna have to improve, but we're, we don't exactly know how we're gonna get there. And I've seen quite a few leading organizations, especially at Greenbuild this past fall, a couple different building own organizations saying like, these are the retrofits.
We're doing 'em, and these are the order we're doing 'em in. And like, it was very impressive to hear some of these presentations. I feel like I wanna like give a little PSA around just some hope there that that's happening more and more, which is great. Great to hear. I'm sure you're seeing something similar.
[00:46:49] Cliff Majersik: Yes, absolutely. Uh, I mean, which isn't to say that there aren't lots of jurisdictions, lots of, sorry, uh, building owners that are still. , you know, their capital plan this year looks a lot like their capital [00:47:00] plan last year and
five years ago. Um, but increasingly the, the leaders, the ones that, uh, are best managed, are planning for the future and planning for a deep carbonizing future.
And you, you see investors recognize that it's really hard to assess, um, the quality of management. And, um, some investors are using, uh, the, the sustainability performance of real estate owners as a heuristic for the quality of. Because that's actually measurable. You can see what the average energy star score across the portfolio is, what kind of capital plans they have, their capital plans recognize the building performance standards that are already in place and their plans.
Uh, and if you see a management team that's doing a good job on that, that's a good indication that they're doing a good job on other things as well that are maybe less measurable. Uh, and so, um, we see the top management teams are increasingly building this into their capital plans and really leaning.
[00:47:53] James Dice: Yeah. One of the things that I've been wondering about, and you're the perfect person to ask, is that with New York [00:48:00] going first and then other cities kind of following behind, what lessons have been learned in these kind of leading cities that are gonna be then implemented in the rollout in in the future cities?
Do you have any stories, any, any examples from, from these leading.
[00:48:17] Cliff Majersik: Sure. Uh, well, and we have more experience with the, the benchmarking and transparency laws that have been around. Uh, you know, one interesting story is from Chicago where they, um, have a irregular cycle. All these benchmarking transparency laws are on an annual cycle. Those, you know, buildings have to benchmark annually and submit it annually, and then those buildings that didn't submit, um, get reminders, uh, and potentially have, you know, to pay penalties if they don't.
Um, and that drives, um, investment in building. And, um, what we heard in Chicago was the building owner, the, the contractors, you know, the engineering firms, the ar, the firms that are doing energy audits, the firms that are manufacturing better lighting and other products to make buildings [00:49:00] better. They were timing, they're timing, their marketing, their timing, their whole sales push around these cycles.
Benchmarking and transparency loss cuz they know that every time that, you know, building owners get a reminder of their upcoming, uh, benchmarking requirements, every time those building owners get a reminder that they haven't complied with those, that haven't, that drives a big spike in, um, sales calls and in, in building owners calling up and looking for solutions.
And so, you know, it's a tangible example of the, the market moving power of even a benchmarking transparency law, which is of course a pretty light touch as compared to a building performance. So we do see, you know, real examples of market change, um, on the ground, um, in jurisdictions that have these policies.
We also see some lessons learned, you know, some policies, um, that have, you know, opportunities for improvement. And, and that's one of the reasons a number of jurisdictions that we're working on building performance standards came to us and they said, we want help. Uh, you know, could you write us sort of a model [00:50:00] law for building performance?
And we took all of the best elements of all the billing performance manage that had already been adopted and some of the lessons learned, opportunities for improvement. And we put that into, uh, this model of law, which is available for free download from our website, it's imt.org/bps. And um, and then we engaged with a number of stakeholders with equity stakeholders, folks, community based organizations, equity.
With, uh, jurisdictions themselves that were, uh, implementing existing laws, uh, as well as developing new ones, and importantly with building owners, uh, and service providers to say, all right, you know, how can we take into account real estate realities, uh, and create a law that doesn't just sound good, but will really make a difference on the ground and minimize unintended.
And for instance, we got 25 pages of comments on our model law, on our draft model law
[00:50:51] James Dice: Oh well.
[00:50:51] Cliff Majersik: round table, which is some of the biggest, that's just one of many, many groups that that gave us feedback. But you know, the biggest building owners recognize [00:51:00] that this policy is gonna be, you know, driving change across the many jurisdictions where they own buildings.
And so, you know, we had a really positive engagement and it improved the draft and, and it's a living document. It's constantly evolving to represent best. But recognizing that, you know, commercial tenants are an important part of the problem and they need to be important part of the solution. Uh, recognizing that affordable housing lacks, uh, capital and you can't require affordable housing to make improvements without providing the resources to improve.
But at the same time, we don't want to exempt affordable housing because that's leaving the resonance behind leaving them out of the. Of higher performing buildings. So there's a whole series of, um, lessons learned from these laws around the country, recognizing that you want to reward density, reward buildings that are operating long hours and, and, you know, getting a lot of production out of a limited footprint of building space.
So, um, a lot of these lessons learned are reflected in both our model [00:52:00] law and we've also recently published an implementation guide for how you implement building performance. And, and we're actually gonna be doing a series of, uh, webinars starting on January 26th, um, that go through, um, best practices for implementing building performance standards, targeted mostly at governments that are in the position of implementing, but also very valuable for service providers and building owners that, you know, are operating in markets with building performance standards.
[00:52:25] James Dice: Brilliant. Yeah. Such an important role you guys are playing. How can, um, anyone listening to this sort of get involved? Can they join the coalition or how, how does it work if, if people wanna make sure that their voice is heard or they want to. , you know, play some role in pushing legislation forward. How, how does that
[00:52:44] Cliff Majersik: Sure. Well, there's, you know, if, if you're a government, we'd love for you to join the coalition. Um, the, the main thing is that you're committing to. Uh, put in place equitable building performance standards, working with your frontline communities, uh, and you're gonna have building performance standards [00:53:00] or similar policies in place by Earth Day 2024.
And again, that's, uh, national bps coalition.org. There's a a place to, um, send an email saying, yes, we want to join the coalition. If you're a company, there are a variety of opportunities, you know, if you're in the business of leasing or um, being. A, uh, landlord, um, then encourage you if you're not already, to look at the Green Lease Leaders program to, um, get recognized for putting in win-win green leases.
Uh, also, you know, we have governments that are directly supporting our work, trying to push legislation, uh, and other, uh, just our best practices around decarbonizing buildings and, and equitable decarbonization. Uh, and we have something we call the corporate, um, the corporate. engagement Opportunity Program, CEO program.
Uh, and that is a program for companies that want to keep current on these decarbonization policies, on these opportunities and that want to support our work financially. Um, [00:54:00] and uh, and then, um, there are a number of companies that we work with on an informal basis. Um, governments always respond to employers, and if a company is in the business of making buildings better, whether that's through innovative products or technologies or services, um, their voice, um, is loud in, in at the local level.
And, and we've had a lot of success working with companies that say, look, I'm in the business of making buildings better. If you pass this law, it will create more demand from my services. I'll hire more people. Create jobs for residents. That's a message that, uh, legislators want it here and, and we work with companies to deliver those messages.
[00:54:39] James Dice: Uh, I'd imagine there's a lot of those people listening to this, this episode, so I apologize if you get a lot of people reaching out to you, cliff.
[00:54:46] Cliff Majersik: no, that's what I want. Send them my way.
[00:54:49] James Dice: Uh, floodgates are open Cliff's, Cliff's inbox. Um, well thanks Cliff, and, and thanks just in general to you and all your colleagues for this such an important [00:55:00] work, um, that's sort of upstream of a lot of, a lot of our listeners work is downstream of what you guys are doing to sort of make the, the. Uh, progress happen before, before they get involved.
So thank you. Uh, it's awesome. Let's end with some, just some carve outs. Any, any books, podcasts, documentaries, et cetera, that you have had, you know, have had a big impact on you lately.
[00:55:23] Cliff Majersik: Um, yeah, I, I really enjoy sort of on the ground practitioner perspective, so I like the house whisperers, um, you know, sort of analysis of what decarbonization is gonna look like for sort of ground level. Um, and I enjoy listening to the Energy Gang podcast. Um, you know, thinking about sort of the broader economy and the grid.
Um, and then just for, for a laugh, and, and I love, uh, Ted Lasso. I've been watching Ted Lasso, um, uh, and, uh, trying to model some of my behavior on some of what he. Does.
[00:55:57] James Dice: Yep. Yep. He's a, he's a model guy. [00:56:00] Uh, I have a friend that reminds me of Ted Lasso and he, he had, it had been a long time. Since I'd watched the show, then I just kept ribbing him, ribbing him, ribbing him. And you're like, you have to watch this. And he finally did. And he was like, yeah, now, now I understand why you wanted me to watch that.
Cuz he's like, it's like kind of like who he is already. Um, well that's cool. That's cool. I'll have to check out the house whisper because I feel like I need some. , uh, sort of therapy around how hard it's been to get my house to towards decarbonization with the, the local supply chain. Where I'm at is kind of like, it kind of feels like pushing a boulder uphill a little bit.
So maybe there's some episodes that will help me sort of work through that, that process. On, on the House Whisperer?
[00:56:44] Cliff Majersik: Yeah, I, I, I think we're gonna see rapid change in that space. The Inflation Reduction Act, which passed last year, is gonna create a ton of new business opportunities for heat pump installation and things like that. So unfortunately though, there's gonna be huge demand, and it may take a while for the [00:57:00] workforce and the contractor community to catch up.
[00:57:02] James Dice: Yeah. And for those of you that are wondering, that are listening to this and heard me talk about my water heater like a year ago, it's still in the same place because of exactly what Cliff just said. I feel like I'm waiting for my local supply chain to sort of catch up with. I just hope that my, my water heater doesn't die.
It's 18, 19 years old now, and I'm like, I really want a heat pump, but I, I, I need somebody to help me with it. So that's kind of where I'm at. I'm, I'm in a holding pattern.
[00:57:30] Cliff Majersik: There was a really cool ticker. It actually was the winning technology at the Verge Conference that where we saw each other, um, called Harvest Thermal, which is pairing heat pumps and water heaters,
um, so that
you can, um, store hot water and potentially in the future cold water at off peak times with, with low carbon electricity and use that to heat your house at peak times.
[00:57:52] James Dice: Makes.
[00:57:52] Cliff Majersik: and also of course, it's, you know, heating your house directly through the air at, at other times. So it's a great concept, um, and we need [00:58:00] to, we need that kind of innovation. Um, recognizing that, uh, that, you know, the, the ways we, we used to do things doesn't work, but there's ways to win win in terms of both for the climate and for lowering utility bills and for more comfortable spaces with innovative technologies.
[00:58:15] James Dice: Awesome. Well, again, thank you Cliff, and thanks for coming on the show.
[00:58:19] Cliff Majersik: Thank you, James. Great talking.
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