Briefing Room


Setting the green precedent

October 5, 2007 | Posts

It’s not unusual to hear of fines being imposed on large corporations that are violating federal clean air and water laws.  And state environmental protection agencies often file lawsuits against companies that have inappropriately released dangerous chemicals, gases, or other substances in the air or ground.

But what if comparable rules were imposed on you, your home, or your subdivision?  Could you someday be fined for using too much energy?  Or for operating your home in a way that is infringing on the environment, or contributing to global warming?

Legal experts say it’s likely and many legal practitioners are gearing up for what is likely to become one of the hottest areas of practice.

“I think the time has come for building green,” said Susan Ashbrook ’87, who is Columbus Mayor Mike Coleman’s Environmental Steward.  “It has been around for a while now, and it just makes so much sense.  The interest in it is just really beginning to build.”

The Green Movement

The green movement has taken off so fast in some parts of the country that law firms have set up “green practice groups” comprised of attorneys with expertise in real estate, construction, public finance, insurance, tax, administrative, and environmental law.  These practitioners help developers secure special public financing for green projects; develop construction contracts that meet green standards; navigate federal, state, and local regulations; insure green projects to their full replacement value; and enjoy all the tax benefits that go with building green.  Of course, litigation attorneys are also there to step in when something goes wrong. Several green building organizations and government agencies allow attorneys as members, or even become accredited in green building, furthering the practice groups’ credibility and marketing power.

While green building helps the environment by using recycled or reusable products and reducing consumption of energy and water, it also is designed to improve health through the use of natural light and materials that eliminate mold, bacteria, and viral growth.  Perhaps most important to commercial developers, the use of green building practices arguably could, in the long run, save money through reduced energy costs.  The McGraw Hill 2006 Smart Market Report estimates that more than 10 percent of commercial construction projects will be green by 2010 with developers such as Heinz, the Durst Organization, Alter Group, East West Partners, and Vulcan Real Estate leading the way.  In addition, the federal government is in the process of developing a preferred purchasing program for environmentally friendly suppliers, including those of products used to construct federal buildings.

Green Houses – The Next Frontier

New-home builders are starting to follow the examples set by green initiatives of government and commercial projects.  But most of the residential builders who are taking on green ventures are doing so because they have received incentives — like grants and tax abatements – that make the job easier to handle financially.

Rick Daley ’78, an Ohio State Moritz College of Law senior lecturer in law who specializes in real estate law, said that the increased cost for developers to build green homes make some sort of governmental incentive necessary given the current economic climate.

“The cost of building green is higher than conventional building,” he said.  “If the government were to mandate the use of green building practices for all new residential structures, I believe that developers would go bonkers.  In the long run, I think building green may well become a generally accepted practice among consumers, much like  recycling is today. Once consumers get to the point that they are insisting that their homes be environmentally friendly, building green simply won’t be an issue anymore.  Remember, the use of lead-based paint used to be a big deal, too.  However, in the short-term, a change to a ‘green’ building environment is only going to be achieved if the government offers serious financial incentives to developers to adopt what is pretty much universally viewed in the development community as being more costly construction practices.”

The city of Albuquerque is currently considering local regulations that would require all new buildings, including residential buildings, to meet specific green standards.  The city estimates this will add about $1,600 to the cost of each new home built. But, changing building codes is not yet the norm and most localities are using incentives instead of penalties.

The city of Columbus donated 11 acres to a developer who would build 30 energy-efficient homes on the city’s north side.  The homes will meet tough environmental standards, including top-notch insulation, and features to ensure the best indoor air quality.  Homeowners also will get a 15-year, 100 percent property tax abatement.

Other cities have found additional ways to lure developers into dropping the extra bucks.  Pittsburgh is considering giving money to developers or homeowners to take on green building projects.  Other towns are allowing builders to surpass zoning code restrictions on density, which, Daley said, translates to extra money for developers.

Daley said that such incentives will continue to be necessary until residents demand the energy efficient upgrades and are willing to pay a premium to cover the higher cost of installing such upgrades.

“Assume for a second that building green does make sense, could a municipality decide tomorrow to legally mandate that all new developments must meet certain environmentally friendly guidelines?” he asked.  “Maybe, maybe not, but I have to believe that most municipalities will opt to dodge that bullet by staying away from mandatory requirements and instead offering financial incentives that are intended to induce developers to adopt green building practices.”

Using such “carrots” is typical when trying to encourage a market to move in a direction it otherwise would not go, said Annecoos Wiersema, a professor at the Moritz College of Law and expert in environmental law.  The immediate impact of inefficient homes on global warming is not currently obvious to many people, she said.

“I think what will determine how quickly people start to make these changes is how quickly the consequences of climate change are felt directly by individuals,” Wiersema said.  “Right now, people are more willing to tolerate restrictions on industry, the car manufacturers, and other big companies – on all the traditional bad guys.”

Dave Robinson ’92, who, as an attorney at the Columbus firm of Porter Wright Morris & Arthur, represents companies that are redeveloping land that once was polluted by industry, agreed with Wiersema.

“Developers are the ultimate capitalists,” he said.  “They will respond to the market.  If big tenants come to them and say we demand a green building, then it is more likely that it will happen.  I think we will have to see some success stories before that will happen.”

Ashbrook said that those “success stories” are closer than many people expect.  She believes that homeowners will, sooner rather than later, begin to demand energy efficient homes because of rising utility costs.

“The amount that these homeowners are saving will cover the extra cost of building pretty quickly,” she said.  “The other thing that I keep pointing out is that energy costs are not going down.  We should be building as though gas is $5 a gallon because it is going to be, and we need to be thinking about that.”

Shifting incentives to requirements – in this case, probably code regulations – is a task that takes time and will start city by city, state by state, Ohio State experts agreed.

Rules on such things like building codes normally are handled at the local and state level.

But Robinson said that doing so might be detrimental for development in some areas.  For instance, he said, if the city of Columbus began requiring certain sustainable upgrades on all its new construction, developers would likely begin to look to other municipalities where they did not face the tougher, possibly more expensive standards.

For that very reason, the federal government may be forced to step in when certain states and cities maintain lax requirements or even lower requirements for green building as an incentive for developers to build in their area, Wiersema said.

“It’s typical in implementing regulations to see the federal government step in when some places begin to diverge away from commonly accepted standards,” she said.  “It will start to become a race to the bottom, if you will.”

However, Wiersema said, the federal government should not be expected to take action on this case anytime soon.  It has taken little specific action to combat global warming so far, she said, and will likely go after more obvious targets first.

For now, cities will start to make common green improvements requirements – which will make transition to a set of mandatory standards an easier and gradual one.  Ashbrook said that Columbus has begun to look at certain minimum standards that can be increased to ensure all buildings are meeting a higher level of quality.

“We will likely pick up some of those low-hanging fruit out there with new standards,” she said.  “But they will be standards that make sense and ones that we talk over with our residential home builders.”

Legal Questions Remain

Meanwhile, several legal questions remain unanswered regarding green construction, primarily those involving what green homes truly are and who and what determines what equates to environmentally friendly buildings.

“Developers will become increasingly more likely to seek to have their buildings characterized as being green, either out of a desire to qualify for the economic and other incentives offered for green buildings by governmental authorities, or to try to cash in on a pricing premium which may attach to green buildings in the future,” Daley said.

With little uniform measuring sticks or legally binding criteria, some people and companies may incorrectly try to attach the green label to buildings that, in fact, aren’t.

“It is what we call green washing,” Ashbrook said. “People have and will continue to claim that they are green when they are really not.  There are studies that show that segments of the population will pay more or be more attracted to products that are environmentally friendly.”

Experts agreed that the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) green building rating is the closest thing to an American measuring stick and certification for verification of properly completed green projects.  LEED is a system of criteria and collection of tools necessary to make the most environmentally friendly additions to a building project.  Extensive paperwork is required to certify that a project has met a certain LEED rating – silver, gold, platinum, depending on the number of points obtained for meeting certain goals.

As of September, just 257 homes across the nation had been certified as a LEED project since the pilot program’s unveiling in February.  Another 6,000 homes were in the process of being certified, according to the nonprofit agency’s web site.  However, the LEED Homes certification program is the latest by the U.S. Green Building Council, which has commercial, government, and school programs that are further along in development.  Those markets contribute the most to the sale of green building products, which totaled more than $7 billion in sales in the United States in 2005 and are expected to increase to $12 billion in 2007.

The ENERGY STAR rating system, a joint program of the U.S. Environmental Protection Agency and the U.S. Department of Energy, began as a way to accurately include clear, easy-to-understand labels defining certain products’ energy efficiency.  That program has now advanced to include dozens of products and also a rating for residential homes.

But Daley said that both LEED and ENERGY STAR rely heavily on a variety of subjective factors to determine if a building is entitled to some type of green certification.  That subjectivity, however, has left several areas open to scrutiny and varying legal interpretations.

Daley poses the following questions: “Who gets to make the determination that a particular building is green? What happens if that determination is wrong?  Will the developer, architect or person making the green certification be liable for damages resulting from an improper characterization of the building’s green status?  What will be the legal consequences if some of the sanctioned design and construction practices ultimately do not produce the desired results of lessening the environmental impact and enhancing the operating efficiency of the building?”

“The answers to these and many other questions concerning green buildings will likely be debated for years to come by real estate professionals, legislators, government regulators, and judges throughout the country.”