With the robust economic environment, businesses in the United States should be able to comfortably invest in reducing emissions from commercial buildings and reap long-term rewards. Implementing energy upgrades in buildings is a core strategy for reducing U.S. carbon emissions. But despite the demonstrated climate, financial, and health benefits of energy-saving upgrades, commercial buildings are not being retrofitted at the pace needed. Though innovative solutions to make retrofits more financially accessible are available, businesses still commonly point to cost as a barrier to retrofits, and a decarbonized buildings industry remains out of reach.
A new ACEEE report takes a holistic look at the commercial real estate industry to uncover the root causes of the slow pace of efficiency retrofits. We found that the problem is structural: The industry comprises many companies—building owners, tenants, contractors, and banks, to name a few—acting individually to minimize costs and maximize profits, but investing in energy efficiency requires these separate actors to work together. Utilities and policymakers must understand this fundamental challenge and collaborate to design programs that enable more businesses to implement retrofits.
The industry comprises many companies—building owners, tenants, contractors, and banks, to name a few—acting individually to minimize costs and maximize profits, but investing in energy efficiency requires these separate actors to work together.
Lack Of Coordination Among Key Players Is Greatest Obstacle To Commercial Retrofits
People discussing obstacles to energy efficiency frequently mention the problem of split incentives. This usually refers to the fact that a landlord may not want to pay for a retrofit if a tenant pays the energy bills because the tenants will get the savings. (The incentive is “split” between the landlord and renter.) Our report argues that we must expand our understanding of the split incentives at work in the commercial building sector. There are many more conflicting interests than just the split between landlords and tenants, and together these divisions compound to further challenge commercial retrofits.
A complicated web of companies is involved in the commercial buildings value chain. For example, investors who own buildings seek to minimize costs to maximize shareholder earnings, and contractors who bid on projects present low-cost options to entice developers and the next buyers…
Read the rest of this blog post on the ACEEE website to learn more about the challenges of energy retrofits in commercial buildings.
As a Buildings & Affordable Housing Finance Analyst with ACEEE, Paul Mooney conducts quantitative and qualitative research to support energy efficiency and decarbonized building in affordable housing, using policy analysis and financial modeling. Prior to joining ACEEE in 2023, Paul worked as a research analyst with S&P Global, covering the global liquid natural gas (LNG) market, and as a research assistant with TBD Economics on a variety of environmental consulting projects. Paul holds a bachelors of science in economics from the University of Delaware.