Every CEO and board of directors in America has at least some inkling that climate-related risks are mounting. The real estate and building sectors are particularly exposed.

Even with staunch opposition at the federal level, new policies have moved forward locally and regionally -- carbon disclosure, new building codes and green building standards, to name a few.

Barack Obama has promised Americans a carbon cap and trade system. An upstream price on carbon will bring higher energy prices. Tenants and owners will demand more efficient facilities that cost less to occupy.

Longer term, the threat of global warming itself outweighs the risk of vacancy rates or lower valuations. If a new building lasts only 60 years, it will still be standing when the climate is hotter than it was designed for.

Index to Greenbuild 2008 Day-by-Day at Energy Priorities

At Greenbuild 2008, the building track included a policy session entitled, "Planning for Impacts of Emerging Climate Change Regulations on Real Estate Valuation." Ceres was represented on the panel alongside Boston Properties, Beacon Capital and Deloitte.

Ceres is a national network of investors, environmental organizations and others whose mission is to integrate sustainability into capital markets for the health of the planet and its people. Betsy Boyle is the Manager of the Real Estate Program at Ceres. She shared her thoughts about some questions that loom large in our minds these days.

How will the current economic downturn affect demand for green commercial real estate?

When the mortgage market collapsed, homebuilders were the first hit. It's taking longer to see the effect on the commercial building sector.

"The credit crunch has made it exceedingly difficult for new building projects to move forward or for building owners to get financing on major renovations," Boyle says. With many companies closing offices or postponing expansions, it will be harder to fill some commercial space. But there is a bright side.

"It also makes sense that the demand for green real estate will continue to grow as more and more companies realize they can cut their operating costs by occupying higher performing buildings," Boyle explains. "This will create more demand for green design, engineering, and energy performance services."

How will a price on carbon affect valuations for commercial real estate?

Carbon constraints are most likely to start by regulating upstream emitters, such as power plants, so real estate won't be directly affected right away. But there are two ways in which green building owners will benefit.

"...the demand for green real estate will continue to grow as more and more companies realize they can cut their operating costs by occupying higher performing buildings."
--Betsy Boyle, Real Estate Program Manager, Ceres.

First, a price on carbon will make energy prices go up for commercial customers. That means efficient buildings will have relatively lower operating costs and higher returns on investment.

"We are sure to see the value of more efficient buildings significantly increasing as carbon markets mature," Boyle predicts.

Second, markets are emerging at the state level in which building owners who make investments in energy efficiency can sell credits to utilities that are equivalent to the amount of energy saved.

"This provides yet another incentive for building owners to make energy investments when they know they’ll be able to recoup a certain percentage of the cost, and at the same time lower their operating costs and boost the value of their properties," Boyle explains.

What if carbon policy doesn't materialize? How strong is the business case for green buildings?

"Whether owner-occupied or leased, anyone operating out of greener buildings will benefit," Boyle says, because the shell is better insulated and the systems are more efficient than in typical buildings. "For those who pay utility bills, they’ll see their operating costs going down because they’re paying less for electricity or natural gas."

"We are sure to see the value of more efficient buildings significantly increasing as carbon markets mature."
--Betsy Boyle, Real Estate Program Manager, Ceres.

The same is true for water consumption. "If you put in place certain measures like water capture and storage, xeriscaping, low-flow toilets and sinks, or green roofs, that means you're using less water, and you're putting less water into the sewer system," she explains. Xeriscaping is a landscaping method that uses native plants to eliminate the need for artificial irrigation. Green roofs have the added benefit of increased insulation.

"According to some studies, worker productivity improves in buildings with better daylighting and air quality -- meaning lower absenteeism, higher output, and overall increased worker satisfaction," Boyle adds. Labor is for most businesses the largest expense line item -- much larger than energy costs -- so a tiny increase in productivity can have a big impact on the bottom line.

What are the major obstacles to having more green commercial buildings in the US?

"Two obstacles that go hand-in-hand are ignorance and inertia," Boyle responds. "There is a silent majority of building owners and developers out there who don’t know enough or who don’t have the wherewithal to develop new practices."

"Part of the problem of ignorance is that people hold on to certain beliefs that are no longer true." For example, the notion that green buildings have a significant cost premium. Studies are finding that buildings designed to be energy efficient cost the same or just a few percent more, and the difference will be offset by lower operating costs.

The other obstacle -- inertia -- is due to a lack of incentives to build green. Congress recently extended tax incentives for energy efficiency, so building owners soon will be able to offset costs.

"Part of the problem of ignorance is that people hold on to certain beliefs that are no longer true."
--Betsy Boyle, Real Estate Program Manager, Ceres.

"But we have a long way to go in this area, especially in terms of finding the right financing models that will make it easier for companies to make that initial outlay of cash for energy improvements," she adds.

"The good news is that for anyone who hasn’t made the leap to creating greener buildings -- and that’s the majority of businesses -- the first steps are the easiest and the cheapest, yet they can have a significant effect," Boyle explains. Lighting, for example, is one of the biggest energy hogs in commercial buildings. Simply switching to higher-efficiency fluorescent bulbs can have a big impact.

How important is a certification such as LEED or Energy Star?

"In our view, anything that gets companies and individuals to improve the energy use in the buildings in which we live and work is a step in the right direction," Boyle says.

Boyle, herself a LEED Accredited Professional, cites studies showing that lease rates and sales values for LEED and Energy Star certified buildings are higher than their non-green counterparts. But that's not the only value in those ratings.

"Both Energy Star and LEED have had a tremendous effect on moving forward the green building agenda in the United States," Boyle says. Organizations such as the U.S. Green Building Council, Green Globes, BREEAM, and the International Initiative for a Sustainable Built Environment are increasing awareness of green building methods and practices.

"These programs differ in their approaches and in what they focus on," Boyle says, "but they all provide education about the effect buildings have on our environment, as well as clear frameworks for property owners to use in creating higher performing buildings."

If you could create one new mandate or subsidy for buildings, what would it require or encourage?

"It is becoming increasingly clear that the first step in tackling climate change will be to significantly scale up energy efficiency in buildings," Boyle responds. "If we are to truly make progress on climate issues we need to take a multi-pronged approach." She lists several ways, including stricter building codes, energy labels for buildings, and financing for energy efficiency retrofits.

"This will allow the United States to significantly and cheaply cut emissions from electricity production and will move us a long way toward any climate goals we set. It will also help bridge the period of time needed to develop and bring more renewable energy sources to market, which will bring us the rest of the way toward meeting our greenhouse gas reduction goals."

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CORRECTED: Ceres was represented on the Greenbuild policy panel by their director of electric power programs. Markets for energy-efficiency credits at the state level allow owners to sell credits to utilities.