by Yetsuh Frank, Managing Director, Strategy & Programs, Building Energy Exchange
Originally published in Building Energy Exchange Quarterly Report (Q1 2022)

The benefits of deeply retrofitting existing buildings in urban communities are almost too comprehensive to list in one place. There are the obvious and dramatic reductions in operational carbon emissions, and the less widely recognized improvements in embodied carbon when compared to new construction. Done properly, deep retrofits typically involve major improvements to the building enclosure, enabling far healthier conditions, proper ventilation, and greater comfort. Such retrofits either enable future electrification, or reach that blessed state right away, eliminating on site burning of fossil fuels and the local air pollution it inflicted on its community for every previous year of its existence. Additionally, retrofitting diverts capital that might otherwise be directed to suburban developments into existing neighborhoods, reducing sprawl and the environmental and health disasters it carries in its wake.

But most of these benefits don’t improve the balance sheet of individual buildings–they are, in economic parlance, externalized. As a result, retrofit costs are often compared to simple maintenance costs or, worse yet but very common, they are compared to zero, to doing nothing, and look expensive . . . and complicated . . . and disruptive to occupants. But despite these costs, whether perceived or real, retrofits must happen across virtually every community if we are to meet our climate goals–and governments are beginning to grapple with this basic reality.

One such example is the “Superbonus” program in Italy. Recognizing that their built environment uses far too much energy and is also unprepared for earthquakes, the Italians devised a scheme that corrects for both problems while also acting as a much needed economic stimulus in the wake of Covid-19. Buildings that perform retrofits like insulating envelopes or converting to heat pumps can receive a subsidy that equals 110% of the cost of the work. Yes, you read that right, 10% more than 100%. This extra spice is provided to cover funding for soft costs like consultants or loan interest. Building owners claim the subsidy by subtracting the costs from tax returns over a five-year period. Or a contractor can pay for the work and subtract it from their own taxes, or you can sell the credits to a bank. 

The Superbonus program has been, well, super popular. More than 21 billion euros of work is being done by more than 120,000 applicants. The impact on carbon emissions will be significant but there are already lessons that other jurisdictions should heed. The demand induced by the program pushed up prices for labor and materials, something the government is now looking to regulate. When it was conceived it seemed reasonable to include fossil fuel-based equipment like high efficiency boilers in the scheme, but disruptions to supply brought on by the Russian invasion of Ukraine are now highlighting that they likely should have required full electrification to access the funding. They also probably should have known that the generosity of the programs would attract grifters. The Italian government has been defrauded of hundreds of millions of euros–money they are looking to recoup and corruption they are looking to curb.

Here at home, New York State offers a suite of incremental efficiency incentives. But rather than push the market from behind by fully funding every retrofit, state agencies like NYSERDA are looking to clear the path in front of the market by reducing friction that currently impedes it. Among the highest profile programs in this vein is the Empire Building Challenge (EBC). Working with ten major real estate owners on the prospects of deep energy retrofits of large buildings, NYSERDA selected four partners to receive $5M each towards flagship retrofit projects. The Building Energy Exchange is lucky enough to support this program for NYSERDA through an educational series and the development of resources like in-depth profiles of the awardees and their projects. The educational series, High Rise / Low Carbon, launched in February with a celebration of the four partners– Hudson Square Properties, Empire State Realty Trust, L+M Development Partners, and Omni NY–setting the stage for events across the year that will educate the broader green building community on innovative approaches to decarbonizing large buildings, both commercial and residential.

The focus of this program is less on technology than it is on process, and importing lessons from places like the Nordic countries and Europe. A major push of the EBC is to encourage the market to develop long term capital plans that compare the incremental costs of decarbonization to already planned capital outlays, and map phased improvements to cash flow, providing a real rather than a distorted picture of the “costs” of decarbonization. The lessons learned from other countries include using existing technology like hydronic heating and cooling distribution and cold climate heat pumps to deliver excellent interior quality while enabling simultaneous heating and cooling demands within a building to share heat across spaces. This latter strategy will be the focus of our first EBC profile–of the Hudson Square Properties and their 345 Hudson deep retrofit proposals. You can learn more about both previous and upcoming EBC events, the profiles as they are published, and other resources at our High Rise / Low Carbon series portal.