The Return to the Paris Agreement and What It Means for Federal Lessors

by | 03 February 2021

Following his inauguration ceremony on January 20th, President Biden settled into the Oval Office to execute a stack of executive orders and other actions. The third document he signed serves to return the United States to the Paris Agreement, fulfilling a pledge made in his earliest days as a presidential candidate.

This international treaty, now joined by nearly 200 nations and the EU, seeks to limit global warming to no more than 2 degrees Celsius—and preferably less than 1.5 degrees Celsius—as compared to pre-industrial temperatures. The United States will formally re-enter the Paris Agreement on February 19th, just 107 days after completing a withdrawal launched by the Trump administration in 2019.

Though there has been considerable debate over whether this agreement is effective, enforceable or equitable, the consequential point is that the Biden administration is all in. The new President clearly intends to demonstrate leadership on the international stage towards meeting the agreement’s lofty goals.

Exactly what those goals will be for the United States remain uncertain. Note that while countries reached a consensus on global emissions targets, each country sets its own goals. In the form of a Nationally Determined Contribution (NDC). The NDC outlines that nations’ individual plan towards greenhouse gas (GHG) reductions over 5-year intervals. The NDC originally developed by the Obama administration called for a GHG reduction of 17% by 2020 (as measured against a 2005 baseline). That would be followed by a milestone of 26% to 28% total GHG reduction by 2025. Every five years, nations are expected to report their emissions and amend their NDCs to reduce emissions further.

The U.S. exceeded its 2020 goal, though the reasons are largely happenstance. Declining natural gas prices accelerated the closure of some coal-fired power plants and reduced output at others. Also, the pandemic dramatically scaled back air, automobile, and other transportation, which are among the most significant GHG contributors. According to one recent report, the reduction in GHG emissions last year was the single largest drop in annual emissions in the post-World War II era. Yet, these cutbacks are not permanent, and recent emissions reductions will inevitably reverse themselves as the economy recovers from the virus.

The consensus among scientists is that global progress toward GHG reduction is well behind the pace required to protect against potentially catastrophic levels of climate change. The United States’ original NDC calls for an acceleration in the rate of GHG reduction between now and 2025, but even if the Biden were simply to re-adopt the original NDC goals, the U.S. will have to play catch-up to achieve them. To truly lead on the international stage, the new administration will have to be more ambitious.

For clues as to what Biden might do immediately, federal property owners can look to Executive Order 13693, signed by Obama on March 19, 2015. This executive order established sustainability goals for each federal agency, including reducing building energy intensity by 2.5% annually. The order required owners of federal buildings to increase the percentages of energy purchased from renewable sources. It further designated that all newly constructed federal buildings must be “net-zero energy”, balancing energy produced and renewable energy consumed, by 2020. The order also sought to evaluate energy efficiency as a performance specification in lease procurements larger than 10,000 RSF.

Though E.O. 13693 was repealed by President Trump, we should expect similar and still more prescriptive mandates to emerge under Biden’s leadership. With the two chambers of Congress now aligned, legislative input is also likely.

Some congressional support already arrived with the passage of the Energy Act of 2020. This legislation, signed into law by President Trump on December 27th, provides funding for initiatives mostly aimed at R&D for clean energy technologies (nuclear, wind, solar, geothermal and hydroelectric, as well as carbon capture). Among the Act’s various provisions are mandates directing the Department of Energy to implement smart building technology in the federal building inventory.

The Energy Act provides bipartisan momentum towards sustainability but for Biden to have any hope of achieving significant GHG reduction, Congress will need to deliver huge infrastructure appropriations. Biden’s climate plan calls for a $2 trillion investment in his first presidential term. A portion of these infrastructure funds would be directed to promote net-zero carbon emissions in commercial buildings.

Other legislative efforts are likely too. One for federal lessors to watch is Senator Ben Cardin’s GSA Resilient, Energy Efficient, and Net-Zero (GREEN) Building Jobs Act (aka GREEN Building Jobs Act) introduced at the end of the last congressional session. This bill, as initially drafted, would expand the Energy Star certification mandate, making it a prerequisite to lease space to federal agencies, even for property owners that intend to renew GSA leases. This is an important innovation because the law as currently established exempts incumbent lessors from Energy Star certification requirements. The Act would also impose many of the same energy intensity reduction goals provided for in E.O. 13693. Though it was not considered in the last Congress, this bill is likely to be re-introduced in some form this year.

It’s clear that energy efficiency efforts are ramping up again, now with even greater urgency. Among commercial buildings, the immediate impact will be on the federal building inventory, both owned and leased. Ultimately we can expect legislative and regulatory efforts to reach the broader U.S. commercial building stock. It’s going to happen, at least in some form, and the time to get ready is now. For federal lessors especially, your preparation for these events may significantly affect your ability to attract and retain federal tenants beginning in the very near future.

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