Tax incentives that assist clean energy projects deployed by the real estate sector are crucial to reducing the built environment’s carbon footprint and achieving national climate goals.

The Inflation Reduction Act of 2022 (IRA) was signed into law by President Biden on August 16, 2022. The $790 billion legislation — the largest federal clean energy investment in U.S. history — includes nearly $370 billion in climate spending that affects “clean energy” incentives important to commercial real estate.

Rules proposed by the Securities and Exchange Commission (SEC) in March 2022 would require excessive reporting by registered companies to exactly quantify emissions and financial risks from climate change — through metrics that are unknown, unknowable, and premised on speculations and hypotheticals.

The SEC’s proposal would impose “one size fits all” requirements on companies to disclose in their 10-Ks climate-related risks and emissions, including Scope 3.

The U.S. Environmental Protection Agency’s ENERGY STAR for Certification for Buildings program is a proven platform for building owners and managers to “label” their assets as top energy efficiency performers in the marketplace.

Investors, tenants, and employees seek buildings and workplaces with ENERGY STAR ratings because they signal well-managed, profitable assets with reduced carbon footprints. 

To complement its “whole building” rating program, in 2018, the EPA issued its first labels to recognize commercial tenants for high-performance design and construction of leased spaces.

The behavior, space design, and equipment choices of tenants can account for more than 50% of energy consumed in commercial buildings—beyond the owner’s ability to control. Expanding EPA’s ENERGY STAR program to add tenant-based recognition is thus a key objective to achieve better efficiency, lower energy use, and a reduced carbon footprint attributable to U.S. real estate.

States, cities, and other localities are increasingly passing laws and ordinances that impose regulatory mandates on buildings to reduce greenhouse gas (GHG) emissions, energy consumption, or both. These local laws are known as Building Performance Standards (BPS).

The effect of BPS laws, and the energy consumption and emissions “targets” they would impose on buildings, can require asset owners to pay for energy efficiency “retrofits,” electrification projects, and install solar panels or other clean energy technologies. If an owner does not take such steps to reduce emissions or energy use, they could pay fines or penalties.

Lessons Learned to Shape Fair and Reasonable Building Performance Standards (BPS) 20-Point Policy Guide Oct. 2024

A number of real estate companies use science-based protocols to establish portfolio-wide emissions reductions targets. As the buildings sector makes progress on reducing greenhouse gas emissions to meet global climate goals, The Roundtable and Nareit have submitted joint comments about specific, proposed guidance that would create “unworkable and unattainable” GHG standards.

There is no mandate in the U.S. at the federal level for real estate companies to set science-based emissions targets. However, anticipated rules from the U.S. Securities and Exchange Commission are expected to require registered companies to report to investors on material climate-related financial risks. Those disclosures could include corporate efforts to reduce emissions.

In 2022, an estimated 72% of office workers worldwide worried about air quality in their workplaces’ buildings—emphasizing the importance of improved ventilation, filtration, and air cleaning in buildings. 

The federal government has a role to play in ensuring that the needs of tenants can be met by building owners and managers.