State of the Industry: The push and pull of regulation and policy
by David Flaherty | 19 December 2024 11:34 am
In some ways, we can anticipate significant changes in 2025, but momentum and necessity will carry forward many recent building trends regardless. It is difficult to predict what will happen at the federal level, but we can anticipate some popular policies will persist while others may be scaled back. However, I believe any influence, or lack thereof, from national policy and regulation will be overshadowed by the push and pull of state and local government policy and international regulation. Increasingly stringent building codes and further adoption of building performance standards and buy-clean initiatives will influence projects outside the affected jurisdictions. At the same time, climate-related regulations in the European Union (EU) and elsewhere in the world will increasingly apply to North American businesses overseas.
Building performance, embodied carbon, natural hazards, and climate change resilience are among the primary ways regulation is, or will soon be, influencing building design, operations, and materials.
Building performance
One of the most direct ways building performance is being regulated is in the growth of building performance standards (BPS). Currently, four U.S. states and nine municipalities have active BPS programs, and many others have pending programs. BPS applies to existing buildings above a minimum floor area and typically excludes some building types/uses (varying by jurisdiction). The standards set a maximum threshold for energy use or GHG (greenhouse gas) emissions per floor area based on occupancy type.
While BPS applies only to existing buildings, designers, builders, and developers of new buildings should take note, as these become existing buildings the moment they are completed and occupied, they are eventually subject to BPS. Building energy codes are becoming more stringent but are necessarily based on prescriptive or projected performance-based requirements, so actual energy performance and GHG emissions may vary from expectations. Even a newly constructed, code-compliant building could have sub-par performance. Project teams in locations that are or may soon be subject to BPS should consider cost-effective measures to go beyond code minimums, especially with elements that are difficult to retrofit, such as the building enclosure or infrastructure to support future solar installation.
Less directly, GHG disclosure regulations, including the EU’s Corporate Sustainability Reporting Directive (CSRD) and California’s Climate Corporate Data Accountability Act (Senate Bill 253), require subject companies to assess and disclose Scope 1, 2, and 3 GHG emissions.
Approximately three-quarters of large companies in the United States will likely be subject to Senate Bill 253. Building professionals should note that GHG emissions associated with buildings may be a material part (10 percent or more) of emissions for buildings owned, leased, or constructed by companies
or vendors. Inefficient buildings with high emissions may become liabilities if they are significant contributors to disclosed emissions. Independent of mandatory disclosure regulations, investors recognize the transitional risks associated with businesses that are not decarbonizing and will demand the disclosure of emissions.
Embodied carbon
The U.S. General Services Administration (GSA) is piloting a “buy clean” initiative, and at least seven states and five municipalities have adopted legislation setting embodied carbon limits for certain construction materials used in publicly funded building and infrastructure projects. More states are working on similar legislation. Last year, California became the first state to adopt provisions in its building code setting embodied
carbon limits for commercial building projects. The State of Washington will likely adopt a similar code provision, and we can expect other states to follow.
These codes provide several compliance paths, allowing prescriptive compliance based on embodied carbon limits for primary materials or demonstrating overall embodied carbon reduction with a whole-building life cycle assessment. Internationally, embodied carbon regulation will also impact U.S. manufacturers. For example, the EU’s Carbon Border Adjustment Mechanism (CBAM) will complete its transition phase this year and go into effect in 2026.
CBAM puts a price on the carbon emitted when producing products imported into the EU. All this increases the importance of environmental product declarations (EPDs) for building products. It also focuses on initiatives by steel and aluminum producers to innovate manufacturing processes and increase
the use of renewable hydrogen and clean energy sources to produce low-carbon metals. Beyond this, a long-term trend will be circularity, designing buildings for effective deconstruction, and creating building materials that are easily disassembled and recycled.
Natural hazards and climate change resilience
Devastating natural disasters in recent years, such as Hurricane Helene, demonstrate the inadequacy of current risk assessment practices. In addition to the tragic human toll, they caused billions of dollars in lost business revenue and damage to real estate assets. Recognizing this, the EU’s CSRD and California’s Climate Related Financial Risk Reporting legislation (Senate Bill 261) will both require subject companies to assess and disclose the physical risks and potential financial impacts of natural hazards and climate change. The ASTM E3429-24 Standard Guide for Property Resilience Assessments (PRA) was released in November 2024. It will be a companion to established ASTM standards for property condition assessment (PCA) and environmental
site assessment (ESA) used in real estate transaction due diligence. Lenders and investors will increasingly expect the PRA, which may eventually provide a basis for determining properties’ insurability.
Developers and their design teams must consider natural hazards, climate change risks, and vulnerabilities that
may occur over the building’s service life and adopt higher standards to increase resilience. A PRA conducted for a future sale or refinancing of the asset may reveal vulnerabilities impacting the property’s desirability.
Metal building product manufacturers have the opportunity to develop and promote building systems and components that increase building resilience to natural hazards such as high winds, hail, extreme heat, and flooding. It won’t be long before buildings designed and maintained for resilience will be seen as more valuable, desirable, and insurable. At the same time, those that are not will become liabilities and stranded assets.
The momentum driving demand for low-carbon, high-resilience buildings and building materials will continue, propelled by various local and international regulations and business risk imperatives. In parallel, the U.S. Green Building Council will release LEED version 5 this year, emphasizing actual building performance, embodied carbon reduction, and resilience. While regulations will require buildings to comply in some cases, savvy businesses will want to stay ahead of the curve given the long-term value creation.
Alan Scott, FAIA, LEED Fellow, LEED AP BD+C, O+M, WELL AP, CEM, is an architect and consultant with over 35 years of experience in sustainable building design. He is the director of sustainability with Intertek Building Science Solutions.
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