The raw material - soon to be a 100-bed hostel/hotel with a difference!

So – in Week 1 of this series, I identified the Hotel Diaries project: retrofitting this building to be a green hotel; by ‘green’ I mean a quantifiable reduction in carbon output of 80%. Last week I defended the 80% number and, although a few people emailed me directly to rant about my position, none took me up on my challenge to post publicly. I take it that the figure is unassailable!

This week, I shall tell you a bit about the general plan of attack in a case such as ours, one in which the owner will occupy the building and be responsible for the operating costs, and I’ll point out some failures for this model to translate to buildings in which there exists an owner-tenant relationship. I argue there exists a local market failure in that situation, and the only practical solution is an enlightened, far-thinking municipal building code. I shall then talk a bit about a hybrid building – that of a standard condo building, and shall offer a few tips for those of you who (like me) occupy such a place. I finish with an overview of the technologies I already know will be a part of the engineering blueprint.

All of the technologies we install (see below for that overview) will be installed on a cost-benefit analysis alone. This includes any ‘premium’ pricing, such as paying extra to offset any remaining net carbon output. This building is somewhat unique, although I would like the arguments I make to be general – applicable to any building. The key economic arguments on this project are being made in the context of the cost of energy-saving technologies being absorbed by the building owner who is also the building occupier. That means we have a good reason to put the investments in up front, since the energy savings will be ours over the long term. This model, however, does not apply to all buildings – many buildings are not occupied by the owner. I shall point out two market failures that exist in these sorts of cases, that prevent the proper economic choice of energy reduction from taking place.

Non-Owner Occupied Buildings and Market Failure

The problem with many buildings is the existence of an economic disconnect between developers (or owners) and the tenants. If the tenant is paying the bill, why would the builder spend the extra capital on, say, geothermal, and not just put in cheap electric baseboard heaters and be done with it? The operating costs are passed off to the tenant, and the capital savings are in the builder's pocket. Here – from the perspective of the public good of reduced energy consumption - is the first form of market failure: it is neither the tenants nor the owners direct economic interest to invest in more efficient energy systems. It is not in the tenant’s interest because the capital equipment would become integrated into a building they do not own (if they were to be thinking along the lengthy time-lines to recoup the investment in the first place – they are tenants, after all!). It is not in the owner’s interest because they have passed off the operating costs. It could be argued that the market will ensure that the rent must be correspondingly lower, offsetting the higher maintenance costs (in order to compete with other more efficient buildings), and thus ensuring the owners get the proper pricing signal - and perhaps in some abstracted models that is the case.

This arguments fails, in my view, for two reasons . First - all else being equal (the rent/operating offsets), building owners will take the simplest (and least risky) route, falling far short of the sort of investment associated with best-practices energy efficiency. Second - tenants may indeed compare operating costs (do they, really?), but in a market in which all the building owners have chosen the simplest route – as they do - what real choice do they have in sending a pricing signal to the owners? It is only when the builder is the occupier that the direct benefit of up-front investing is made manifestly clear. The only way to fix this problem, it seems to me, is for municipalities to generate new building codes, so that owners are forced to invest in these sorts of technologies – or else pass a law that mandates the operating costs be borne directly by the building owner. The latter suggestion may just shift rents upwards, though, as the owners pass off the burden to tenants, having already established the rent+utilities baseline. Far-sighted municipal building standards, then, seem very important.

Does anyone out there know of any enlightened jurisdictions where this is the case? Are there groups that advocate for this sort of thinking? On the flip-side, think of the tenant who doesn’t pay the utility bill directly – either the land-lord pays it, or it is some sort of aggregated bill, lumped in with all the neighbours. I remember cases like this as a student: in the winter-time, everyone has their heat on full-blast from the cheap-as-paste baseboard heaters installed by the slum-lord owner, and the windows kept wide open for fresh air. This is another version of the tragedy of the commons, and another form of market failure – no-one has an incentive not to act this way, since the savings to them will be negligible.

Here, the solution may be to “sub-meter”; a private company sets up separate meters for each apartment/tenant, and acts to give each tenant only their share of the total energy delivered by the utility. It’s been reliably shown that bills go down 25-30% when sub-metering is installed. An example of such a company, recommended by the highly-regarded energy consultant Paul Bradley is Stratacon. Again, the benefits to any one building owner are minimal, though existent (since here it is the tenant who pays, and the causal order is reversed) - what would be really effective is for sub-metering to be mandatory, so all building owners are brought on-side. So – admittedly – what we are doing as an owner/occupier with this project has its own economic model. How to apply that model to other situations is an issue of regulation and building codes; otherwise the market fails to send the right signals.

Question: So why are free-market fundamentalists constantly bleating about the efficiency of the market in addressing some social ill? Aside from the global failure of markets to address moral and environmental goods, there are all sorts of these localized inefficiencies built into the system. The market is just a system, no better than the rules and values we build into the system itself - and no worse. The market has no teleology, no aim or direction outside of the efficient distribution of scarce goods. The idea that the market ‘solves a public good’ is a non-sequitor; the market is merely a mechanism, and any public good it is to solve, or value it is to reflect, must be built into that system as an external variable. We do this all the time for the public good - insert external variables reflecting our values; laws that make cocaine illegal are just such an example.

What About Condos?

“All that is very well and good for a building that is being completely gutted” , I hear you say, “but what about my condo building?" Fair question. Those buildings (including mine here at Quad Lofts in Toronto) all waste energy simply because the builders, who will be passing the buck on monthly energy costs to the condo owners, have no real incentive to put in the best-practice equipment from an efficiency perspective. There are exceptions to the rule, but that’s what makes them exceptions – the fact that in most cases condos downtown waste a ton of energy because the developers were motivated to maximize a short-term profit on the sale. How to save that energy? Well, find an engineering company that does energy audits (like Mann Engineering here in Toronto - there are lots of these guys in all major cities). A quick audit can identify at least 25% in reductions in energy use, which can go higher with far-sighted installations like solar thermal.

So here is a small sample of the kinds of things that can reduce your load (and your condo fees!). First off, efficient boilers. Lots of existing boilers (or ‘boiler farms’ as they are called – a big building will have several bus-sized boilers puffing away down in the depths) are old, and inefficient. So replace them. Those boilers heat water both for the heating loop and for domestic hot water. Each of these loops is closed, and there is sometimes a third loop for chilling (air-conditioning). So get an efficient chiller, too. Get these units before the end of their life-cycle, because the energy savings can often justify the replacement. Second, put some controls in place to govern the ventilation and heating systems. Building code says you have to ventilate all the public spaces in a condo building (the hallways, etc.), but that code doesn’t say you have to put a thermal exchange system, or only ventilate them when you need to. What this often means is that those public spaces are just massive 24-hour warm air tunnels – suck in cold air at one end, heat it up, and blow it out the ventilation at the other end. So put in thermal recapture devices on that air-flow, and regulate how often you’re blowing all that air through in the first place. I know the fans outside my condo door are blowing 24/7/365 and there are only 5 units on this floor!

Also, put some heat exchangers between the domestic hot water loop and the heating loop, put some controls on the boiler farm so they each turn themselves on and off in some efficient manner, and maybe even put solar thermal on the roof to pre-heat all that water. (Note there is a 25% subsidy on solar thermal equipment, up to $80,000, here in Canada– this was a Liberal program called REDI, the Renewable Energy Development Initiative – or some such thing – that was killed by the Conservatives. Those very same Tories have just re-vamped the same program - now they’ve felt the heat! - and called it the EcoEnergy Program.) There are other bits and pieces they can do – often the controlling systems can be quite intelligent (getting units running at off-peak hours and so on) and Mann actually control a couple of hundred buildings from their offices via some I.P connection – so get them (or some competitor) in for an audit.

How does all this happen for a condo owner? Contact your condo president. Contact an energy auditor. Have a condo meeting. The engineer will do a walk-through the building with the condo board prior to the meeting. She then talks at the meeting for 15 minutes and goes home. The condo board pays around 3-4 grand for a full, detailed audit, complete with payback periods, the works (and you can often get half this back from Consumers Gas on the Demand Side Reduction program, at least here in Canada – I’m sure there are similar programs elsewhere). Then let them do all the work, and finance the new equipment with the cost-savings. Basically, call them in and let them do the work, and kick back. It’s not hard to do. Enjoy the cost savings and good vibes from mitigating your carbon footprint.

On a progress note: Today is the day we finally get our building permit! It’s taken a year to get this far, and now at long last, construction begins in earnest next week. The building is empty, waiting for all the great new energy-saving equipment to go in – as a reminder, here’s a brief summary: Geothermal heating and cooling provided by Clean Energy Developments combined with solar thermal to pre-heat the water. I shall investigate geothermal next week, as I believe it is the lowest-hanging fruit on the carbon-reduction tree, at least as far as building stock goes. There will be low-energy lighting (either LED or compact florescent), good insulation, Powerpipes on all the shower drains (thermal drain water re-capture), and some sort of automation on all the mechanical equipment to provide some intelligence on the timing of when each device comes on. There will be a green roof, and perhaps some solar photovoltaics on the roof, sharing space with the solar thermal. Finally, there will be some sort of offsetting of the electricity that is consumed – either through Bullfrog Power or Zerofootprint. There are lots of technical details to fill in with regards to all the technical specs and engineering design, but those are all the top dogs in terms of carbon reduction. Geothermal leading the charge. Each of these technologies will be the subject of a separate column. Next week – the building itself and geothermal.