Finally some "new" research from the Kahn-Kok front: we've revised our paper on commercial building energy consumption, now titled "Energy Consumption and the Durable Building Stock: The Capital Vintage Paradox." Not sure whether that's exciting enough for the non-academic reader, so just in case you do not have the time to go through the academic prosae, I'll summarize the paper in a couple of sentences.
Over the past three decades, building codes have been implemented and sharpened for residential and commercial buildings. For the former, that has led to reduced energy consumption in more recently constructed dwellings (as documented by Matt Kotchen for homes in Florida, and by Matt Kahn for homes in California). However, in commercial buildings, something seems to go wrong: the "steady state" energy consumption of buildings constructed after 1970 has been increasing ever since!
Controling for occupancy and building characteristics (including size and amenities), buildings constructed between '90-'00 consume 17 percent more electricity, and buildings constructed since '00 consume 12 percent more (both compared to 1960s levels). Importantly, we also find that the response of buildings to "temperature shocks" (or, hot days, in plain language) is much steeper for newer buildings, which has implications for managing peak load demand (an often ignored, but increasingly important factor in building energy efficiency).
So, what's going on? It seems like occupants in newer building choose to be more comfortable when the "price" of comfort is lower (i.e., when the energy efficiency of a building is higher), also known as the rebound effect (see previous post). More advanced technology allows people to be comfortable at any moment, at any place in the building. The ability to separately cool spaces in the building is great, but that flexibility has drawbacks for energy consumption (a new start-up called "Building Robotics," gives occupants an app to adjust the temperature at their workstation). Of course, newer buildings might also have more appliances.
It's important to think about these findings in the light of policy discussions on energy consumption in buildings. The results imply that peak demand of the commercial building sector will increase as new buildings are added, and the existing stock is improved through retrofits. Managing peak loads is an important aspect of policies that aim to reduce energy consumption, especially in areas with a (pre)historical grid (think: most of the US). Key takeaway: there is an exacerbated externality associated with the rising quality of the durable building stock.
Sustainability and Real Estate Investments (Ceres)
At the recent annual conference of Ceres, a forum of investors and corporates to discuss sustainability issues (Ceres founded GRI, within others), I moderated a nice panel on how institutional investors (can) integrate sustainability into their real estate decisions. The line-up was pretty amazing, with Laurie Weir of CalPERS, Jennifer Young of the Townsend Group, Mike Ibarra of Landon Butler & Co (responsible for the MEPT fund), and Darryl Neate of Ofxord Properties (OMERS). Here's the full slide deck, very interesting to see the different views:
