Verge and the built environment report

October 2012

AND THE
BUILT ENVIRONMENT
by ROB WATSON
CEO, EcoTech International &
Sr. Contributor, GreenBiz.com

Defining and accelerating the business of sustainability.

Executive Summary.....................................................................................3
Buildings: Doing More with Less.................................................................5
Transportation: Access Trumps Mobility....................................................10
Information and Communications: Catalyst & Enabler.............................15
Energy: Smarter and Decarbonized..........................................................20
Contents Infrastructure: Falling Apart.......................................................................24
It’s the Economy, Stupid (or Is It?).............................................................29
Coda: Optimizing the Whole....................................................................30
About the Author......................................................................................31
About the Sponsors...................................................................................32
About VERGE............................................................................................33
About GreenBiz Group..............................................................................34

Researched and Written by Rob Watson
For GreenBiz Group:

Joel Makower, Chairman and Executive Editor
Derek Top, Senior Editor and Program Director, VERGE

Eric Faurot, Chief Executive Officer
Pete May, Co-founder and President
Samuel Smith, Executive Producer
Alan Robinson, VP Sales

Thanks to Our Sponsors:

AND THE
BUILT ENVIRONMENT

2 © 2012 GreenBiz Group Inc. (www.greenbizgroup.com). May be reproduced for noncommercial purposes
© 2012 GreenBiz Group Inc. (www.greenbizgroup.com). May be reproduced for noncommercial
purposes only, credit is given to GreenBiz GreenBiz Group Inc. andthis copyright copyright notice.
only, provided provided credit is given to Group Inc. and includes includes this notice.

In 2011, GreenBiz Group asked: What happens when four massive technologies
(energy, information, buildings, and transportation) collide? The answer is “an
unprecedented opportunity for business and sustainability” called VERGE.

VERGE refers to a vast array of products, services, and business models, and
includes within its sphere a number of other trends: next-gen cities, intelligent
buildings, connected mobility systems, big data, smart grids, the “share
economy,” and more. Each of these things is a product of this technological/
Executive Summary industrial convergence, and each stands to have its own profound impact on
business, consumers, government, and sustainability.

Of course, VERGE is place-based — that is, it happens somewhere: a building,
campus, neighborhood, city, or region. That is the focus of this report: the key
trends that undergird how this technology convergence will unfold in the context
of the built environment over the next few years.

The 20th century emphasized linear thinking and the efficiencies of assembly-
line production. We got very good at understanding the parts and optimizing
the components. Unfortunately, this came at the expense of sub-optimization
of the larger system. By contrast, we believe the 21st century will be one of
integration and non-linear systems thinking — a convergence of increasingly
complementary parts in support of an optimized whole. The overall catalyst for
this systems view is information and communications technologies, or ICT — the
explosion of information-enabled products and services.

That is certainly true when it comes to the built environment. Truly competitive
buildings, developments and cities are rife with connectivity that extends from
the micro to the macro. Sensors and other metering technologies increasingly
are becoming embedded in building equipment that can now be connected,
monitored, controlled, and optimized through cross-platform management
systems that allow interoperability. ICT is now facilitating and enabling the
beginning of two-way flow of information and energy — a “conversation”
between the electric power grid and intelligent buildings, vehicles, and devices
of all kinds. And, as mobile broadband expands, all these components can be
controlled at a device, building or portfolio level by a conventional smart phone,
or even machine-to-machine, without human intervention.

Although the convergence of buildings with energy, ICT and transportation is
just emerging, the following indicators show that it is already having a positive
impact on helping companies and cities achieve their sustainability goals:

• P
rojected 2012 CO2 emissions in the United States are on track to be
about 14 percent lower than the 2007 peak. In terms of emissions per
real dollar1 of GDP, the rate has decreased steadily since the 1973-74
AND THE
BUILT ENVIRONMENT

oil embargo — from 1.93 pounds per dollar of GDP to a forecast 0.76
pounds in 20122 — except for odd year or two when the recession
sapped economic growth more than the regular improvement of energy
efficiency. Energy consumption per dollar of GDP shows a very similar
trend from 15.41 kBtu down to 7.48 kBtu per real dollar of GDP.

1 “Real” dollars are adjusted for inflation. We used the figures in the Monthly Energy Review (MER) September
2012 based on chained 2005 dollars. Table 1.7.

2 2012 GDP figures assume a 1.9% growth rate (Bloomberg, October 15th); CO2 figures are based on YTD fig-
ures for Buildings (Residential & Commercial), Transportation and Industry derived from the MER report.

3 © 2012 GreenBiz Group Inc. (www.greenbizgroup.com). May be reproduced for noncommercial
purposes only, provided credit is given to GreenBiz Group Inc. and includes this copyright notice.

POUNDS OF CO2 / DOLLAR OF GDP (2005)
2.0

1.5

1.0

0.5

2012 est.
1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2012 est.
Pounds of Carbon Emissions per Real Dollar of GDP
Energy Information Administration, Department of Energy, Monthly Energy Review, September 2012, Table 1.7 & Table 12.1.

• Vehicle Miles Traveled (VMT) per capita peaked in 2004 and have
Building energy use
declined 6 percent since; total VMT is down about 3 percent from its
in 2012 is expected 2007 peak. Oil imports peaked in 2006 and oil consumption peaked the
to be almost 8 year before.
percent below • Fixed broadband penetration (defined as download speeds of at least 2
the 2008 peak, Mbps and upload speeds of at least 756 kbps) exceeds 40 percent of the
population, according to the U.S. Federal Communications Commission,
the lowest annual
but ranks 15th of 28 OECD countries on a per capita basis.
consumption this
• B
uilding energy use in 2012 is expected to be almost 8 percent below
century.
the 2008 peak, the lowest annual consumption this century. Commercial
building energy use is almost 6 percent lower than the 2008 apex.
Launched in 2000, the LEED Green Building Rating System now
represents over 20 percent of new construction in the U.S.

• Residential sector energy use is forecast to be nearly 11 percent lower.
The average size of a dwelling unit (weighted average including both
single & multifamily) is 7 percent below its 2006 peak.
AND THE
BUILT ENVIRONMENT

It may be tempting to dismiss many of these indicators as being driven purely by
challenging economic and employment conditions, but our research indicates
that, as important as the recent recession is in driving change and transforming
markets, as our report indicates, there is more to these trends than that.


The Big Picture Enabled by technology, changing demographics and individual
preferences, companies are trying to squeeze more out of the space they
have, rather than squeezing out more space. This trend toward greater asset
utilization is most evident in the office sector, through we see signs of this in
retail buildings, schools, and homes, which are increasingly becoming part-
time workspaces. Most corporate real estate professionals see their portfolio
contracting, not expanding, in the near term.
Buildings: Doing More with Less Average office space per person is steadily declining and forecast to drop
more than 30 percent in the next five years. Big-box retailers are downsizing
their stores, in some cases as much as 40 percent, and adopting urban location
strategies rather than a strictly suburban/rural approach. (If this trend fully
evolves, we may need to rethink the “big box” moniker.) In U.S. homes, the size
of an average new residential unit is down more than 7 percent since 2006.3

The Drivers In the 2008-2011 Green Building Market and Impact Report, we
wrote extensively about drivers of building energy efficiency, including the LEED
Green Building Rating System and its interplay with the ASHRAE national energy
standard. We believe that these standards will continue to be quite influential in
the building sector and continue contributing to its lower energy intensity.

According to Richard Kadzis, CoreNet Global’s Vice President of Strategic
Communications, the backdrop of continuing economic uncertainty and cost
containment are two principal drivers of greater asset utilization. However,
demographic trends are also playing a bigger role, with strong growth in close
— in urban centers compared with suburban or far suburban areas.

For starters, commercial building vacancy rates remain stubbornly high after
the official end to the recession in 2009. While there is some prospect of
accelerating construction activity over the next few years, the amount of new
floor space is expected to remain weak. With real estate budgets stretched,
companies are cutting back on their square footage.

Technology also is enabling companies to reduce or eliminate permanent space
per employee. Instead, they have unassigned space that can change daily,
assigned on a first-come, first-serve basis, or depending upon the need for
collaborative and team activities. ICT has facilitated both the more-efficient use
of space through online reservations and also the ability to work remotely.
But ICT doesn’t do it all: There is a new job position called a “hoteling
coordinator,” which has been advertised on behalf of Deloitte, Booz Allen
Hamilton and Ernst & Young, among other firms with large numbers of mobile
employees. And retailers are beginning to adapt a dual strategy where shoppers
can come to a physical location to preview and test actual merchandise, which
AND THE
BUILT ENVIRONMENT

can be ordered online and delivered to their home with the physical stock being
located in cheaper warehouse space, perhaps miles away.

Telework is growing in both government and the private sector, although there
is not one fixed definition of “telework.” At one end of the spectrum is the
definition where people work at home at least one day a week, a cohort that
the Telework Research Network says is growing almost 60 percent per year and
now encompasses 20-30 million people. More conservative estimates from IDC
Research — where telecommuters work from home at least 3 days a week — as
3 Calculations based on US Census Data, Table Q1, Characteristics of New Housing


reported in the 2012 State of Green Business report found that telecommuting
grew slightly in 2011, from 8.5 million to 8.6 million households.

Not surprisingly, telework is quite common in the tech industry, but it also has
found adherents in other sectors. In addition to the reduced need for floor
space, telework has been credited with reducing absenteeism, improving
recruitment, particularly among younger workers who prize flexibility, and
There is a new reducing turnover. Many corporate managers continue to be suspicious of
job position telework, however. For example, per-employee savings notwithstanding,
according to a study by the MIT Sloan School of Management, telecommuters
called a “hoteling — rightly or wrongly — are slightly less likely to get promoted. As the 2012
coordinator,” which State of Green Business report noted, “Distrust among middle managers is the
has been advertised biggest hurdle to growing the ranks of telecommuters.”
on behalf of The Impact Overall energy use for buildings should continue to decline, but
Deloitte, Booz Allen energy intensity of buildings could rise as space is more intensively utilized.
On a macro level, we expect that less floor area will be built for both living and
Hamilton and Ernst commerce, which could result in lower overall real estate costs for companies.
& Young, among This will allow them to locate in denser, and more expensive, urban cores.
other firms with Retailers — including giants such as Walmart, Target, and Best Buy — have been
large numbers of shrinking their footprints for a while, gaining more revenue per square foot while
mobile employees. reducing overhead. Indeed, some are pursuing a much more urban strategy.
Downsizing and urban relocation have affected regional malls, some of which
are starting to diversify to include health care and government services, even
residential. This trend could have interesting implications for suburban office
parks and malls, allowing them to evolve into mixed-use “town centers.”

This would not be inconsistent with residential building trends. Living units
on average already are 7 percent smaller today and much more likely to be
multifamily than five years ago. The amount of occupied commercial floor space
per dollar of GDP is at historic lows.

Where It’s Headed According to the 2012 Human Capital and Work-Related
Quality of Life survey by CoreNet, the average space allocated office workers
across all companies in 2017 is forecast to be 151 square feet, compared to
176 square feet today and 225 square feet in 2010. Indeed, 40 percent of the
companies surveyed by CoreNet anticipated having average office area of
100 square feet or less within five years. For companies that have adopted a
comprehensive mobile technology strategy, this figure could be as low as 50
square feet per employee, according to Jones Lang LaSalle.

An office space benchmarking survey conducted by the General Services
Administration showed a 2010 average of 200 square feet of usable space per
AND THE
BUILT ENVIRONMENT

person in the private sector, compared with a 190-square-feet benchmark in
government.4 But the GSA office consolidation and upgrade project (currently
on hold) was benchmarked at approximately 80 square feet per employee.

Key Players A growing number of companies and government departments are
stressing “smaller but smarter” workplaces that rely not only on open, flexible
space but also heavy reliance on telework strategies. Leaders include:

• The federal government is a major adopter of space consolidation and
promoting telework. For example, the U.S. Patent & Trademark Office
expects to save $1.5 million a year thorough offering flexible workspace.


Floor Space per Employee
2010 675= 225
With 25 percent of 2012 528= 176
its global workforce

2017 453=
151
as road workers or
telecommuters, IBM
saves $700 million Estimates of Floor Space Trends from CoreNet Survey
in real estate costs
each year. • IBM With 25 percent of its global workforce as road workers or
telecommuters, IBM saves $700 million in real estate costs each year.

• Sabre Holdings—The travel firm reduced its real estate costs by 25

percent—roughly $10 million a year—through its Flexspace program.

• AT&T—Ma Bell saved $550 million per year through space consolidation.

• Nortel Network—Its telecommuting program reduced the need for 1.6
million square feet and $20 million annually in real estate costs.

Yeah, but… A study published in 2001 by Cornell University, Offices that Work,
found that having open-plan offices fostered joint innovation and quick problem-
solving sessions. Originally thought to lead to greater chance encounters and
stimulate discussion and new ideas, the open plan office is nearly ubiquitous in
today’s corporate world: Teknion corporation’s 2011 Workplace of the Future
survey predicted that by 2015, more than three quarters of U.S. companies
expect to use open workspaces with fewer offices.

However, the vast majority of studies show that the noise level and constant
interruptions result in increased stress and lower productivity. European research
shows that while employees who ask for help do better in an open space, those
who supply the help can often find their productivity decline. Ironically, in order
to get away from prying ears, many workers choose to discuss ideas regarding
innovations and new products outside of the office.

Dr. Vinesh Oommen of Queensland University in Australia, in a literature review
on the impact of open plan offices on productivity, concluded, “In 90 percent
AND THE of the research, the outcome of working in an open-plan office was seen as
BUILT ENVIRONMENT

negative, with open-plan offices causing high levels of stress, conflict, high
blood pressure, and a high staff turnover.”

Some suggest that the preference and productivity of open plan offices may
be a more generational and even personality issue. Gen X’ers and Gen Y’ers
have grown up in a more open and collaborative setting and extroverts thrive in
this type of environment, regardless of age. Older, more experienced workers,
however, have lower tolerance for the hubbub of open-plan offices, and

4 General Services Administration, Office of Real Property Management, Performance Measurement Division,
Workspace Utilization And Allocation Benchmark, July 2012 update.


introverts need some sort of privacy and seclusion to be productive.

Unfortunately, green office space is not likely to solve many of the issues
surrounding open-plan offices. For a variety of resource conservation reasons,
the majority of green office space is open plan. A 2007 study of LEED
certified office space by the Center for the Built Environment at the University
of California shows that, although they perform better on most indoor
environmental quality metrics, they are acoustically inferior.

Get Your Inner Geek On... According to ING Clarion Partners’ David J. Lynn,
writing in the National Real Estate Investor, renewed trends in urbanization is
driving change in retail strategies. Lynn uses rent growth as a proxy for both
demand and overall trends in location. According to Lynn’s research, over the
last five years, rent growth for central business district (CBD) retail assets has

MSA Historical CBD Historical MSA Forecast CBD Forecast
Market
(%) (%) (%) (%)
Atlanta -0.34 -0.88 -1.32 -0.77

Boston 2.2 3.5 0.2 1

Chicago -5.48 -5.8 -2.02 1.4

Denver -2.14 -3.3 2.3 1.2

Houston 1.6 5.3 2.89 3

Miami 2.08 7.5 2.58 2.5

San Francisco 2 10.6 0.1 0

Washington DC 1.32 9.6 1.63 1.6

Average of top 15
0.55 1.42 1.49 2.11
retail growth markets

Comparison of Growth Rates in Retail Rents

outpaced that of the overall Metropolitan Statistical Area (MSA) more than half
the time, as shown in the table below. In addition, the five-year forecast is for
CBD rent growth to outpace that of the MSA more than two thirds of the time.
Not only is the rent growth higher, but it is one a half times higher.
AND THE
BUILT ENVIRONMENT

Past 5 Years Forecast 5 years
Rent Growth CBD vs. MSA 255% 142%

Fraction of markets where CBD
53% 67%
growth exceeds MSA growth

Comparison of rent growth between CBD and MSA


ESREVER MIGRATION
As urban environments become more livable, many corporations are reversing
the suburban flight of 30 years ago. Some examples:

United Airlines
The airline has signed one of the largest leases in Chicago history in the
Willis Tower, leasing 830,000 square feet through 2028.

Sara Lee
In 2005, the company moved out of its 60-year home in Chicago for
Downer’s Grove, a suburb. However, the company has announced that in
2013 it plans to relocate 500–650 employees back to downtown Chicago.

Amazon.com
The online retailer’s new headquarters, totaling 1.7 million square feet in 11
buildings, is located on a Seattle streetcar line, providing direct access to
the city’s airport.

Salesforce.com
announced in 2010 that the company spent more than $270 million to buy
14 acres in San Francisco’s Mission Bay to build a two million-square-foot
headquarters. However, in early 2012 the company abandoned its plans
for building the project, opting to remain in and expand its downtown San
Francisco presence in 3 newly available buildings that would give them
nearly the space of Mission Bay several years before that project would
be ready. According to an article in Forbes, Salesforce CEO Marc Benioff
noted “We can attract extraordinary talent [to San Francisco]. It’s not Silicon
Valley, the flatlands.”

Zappos
is scheduled to move 1,200 employees to downtown Las Vegas in 2013
from suburban Henderson.

Motorola
is moving all of its 3,000 Mobility division employees outside Chicago to
downtown, taking over several top floors of the LEED-certified
AND THE Merchandize Mart.
BUILT ENVIRONMENT

Many fast-growing startups are opting for downtowns, sometimes settling in
sub-prime parts of town. Downtown Internet firms include:
Zynga (San Francisco) • Square (San Francisco) • Tumblr (New York)
Pinterest (Palo Alto) • Twitter (San Francisco)


The Big Picture With the advent of always-on, high-speed and mobile
communication, it is possible to have nearly continuous access to people,
work, goods and services from anywhere. Two very large demographic cohorts
— retiring Baby Boomers (those between 47 to 67 years old) and coming-of-
age “echo boomers” (a.k.a. Generation Y, ages 18 to 34) — are expressing
preferences for the compact, diverse opportunities available in denser urban
environments, mean that they are choosing access over mobility.
Transportation: Access Trumps Mobility For the younger generation, this choice appears to be reinforced by the fact that
in 2011 Gen Y’ers bought 30 percent fewer cars than were sold to this cohort
4 years ago, and adults in the 35-44 age range curbed their car-buying by 25
percent, while losing a large number of licensed drivers. This indicates that many
younger people are eschewing the physical access from remote locations that
cars gave earlier generations in favor of the access provided by virtual mobility.
Public transit, car-sharing, bicycling, and walking are just a few of the preferred
options for sustainable mobility among younger people.

Ania Wieskowski outlined in the Harvard Business Review the many physical,
mental and cultural problems with suburban living, and notes that almost two-
thirds of college-educated job-seekers locate first to where they want to be:
the cities, which have quick physical access to a variety of goods and services
without having to rely on a car, then they find a good job.

The Drivers Before automobiles became a dominant element of American
society, if people wanted to see someone or get something, they simply walked
to their neighbor’s house, or to the relatively convenient town/city center. With
the advent of sprawling suburbs and automobile transportation, access, in terms
of time, grew significantly in spatial terms.

Earlier this year, Time.com reporter Brad Tuttle wrote about eight key influences
on America’s driving habits, which we group here by VERGE category with
commentary based on our research:

ICT

• Telecommuting: As noted above, for reasons of greater access and cost
savings, more and more companies are embracing at least part-time
telecommuting.

• Online shopping: Online shopping continues to grow by double digits
annually, but retailers are finding ways to consolidate their real estate
footprint and take advantage of an online component in conjunction with
their physical properties. A 2008 Carnegie Mellon study updated last year
found that online shopping had a lower environmental footprint than in-store
AND THE shopping principally because of the reduced transportation footprint.
BUILT ENVIRONMENT

• Information technology: Another side of the online shopping coin, what we
call “informational access,” allows people to interact socially without being
physically together.

• Home entertainment: Numbers vary, but the electronic gaming industry in
the United States is 60 percent to 70 percent larger than the film industry in
terms of revenue. Add to this a wide array of cable and online entertainment
options and it is no longer necessary to leave the home for this type of
entertainment.


Transportation

• Gas prices: There is no doubt that gas prices influence behavior in the short
run, but as noted below, the overall cost of driving is still considerably below
that of a decade ago, in inflation-adjusted terms. Perhaps the confluence
of rising ownership costs and the other trends mentioned will combine to
moderate, if not reverse, America’s half-century-long increase in annual
The trends of urban vehicle miles traveled.
densification and • Traffic: Although traffic is worse than the 1982 baseline — “wasted time” is
growing access about 15 percent greater across the 400+ urban areas studied — congestion
conditions have actually improved slightly since the year 2000, according to
to broadband
research by Texas A&M University. Of course, your congestion may vary.
information are
Buildings
affecting two of the
largest demographic • Shift to urban living: As noted above, the trends of urban densification and
growing access to broadband information networks are affecting two of the
cohorts in the U.S: largest demographic cohorts in the United States: retiring “empty nest”
Baby Boomers and Baby Boomers and the 18-to-34-year-old Gen Y “Echo Boomers.” As part of
the 18-to-34-year- wide-ranging livability programs, many urban areas are significantly increasing
the physical and informational infrastructure to support non-motorized
old Gen Y “Echo
transportation and trips. Research by William Frey of the Brookings Institution
Boomers.” indicates that the annual population growth rate in exurban and suburban
areas has declined precipitously from over 2 percent to below 1 percent since
the late 2000s. At the same time, city and high-density suburban populations
have climbed significantly, from negative growth in 2006 to growth rates of
nearly 1 percent today, equaling or surpassing their less-dense counterparts.
• Employment trends: Of course, employment — or lack thereof — impacts
transportation trends. And although unemployment remains high, the
improving job growth since 2009 has not resulted in a resumption of car
travel. Interestingly, the decrease in energy and carbon emissions from
transportation accelerated in 2012, which could mean that a virtuous cycle
— urban job growth, substituting virtual or non-motorized access for mobility
and continued improvement in auto fuel economy — will keep transportation-
related energy and carbon emissions low amid economic recovery.

The Impact There are contradictory trends regarding peoples’ use of
transportation services. So, while it is premature to say that America’s love affair
with the automobile has ended, certainly the honeymoon is over.

On the one hand, vehicle miles traveled — both for personal vehicles as well as
heavy trucks, including long–haul transport and local delivery — have declined
AND THE over the last few years. Clearly, the trucking industry has been hit by higher fuel
BUILT ENVIRONMENT

prices and the recession since 2007 but large fleets such as UPS and FedEx also
have improved the energy efficiency of their fleets.
On the other hand, although fuel prices have risen sharply since 2009, the cost
in inflation-adjusted dollars for driving 15,000 miles, including both fixed and
variable costs, is about the same as it was in 1996 and considerably lower than it
was a decade ago.

Fuel economy for the personal vehicle fleet (including light trucks) is the highest
on record. If FedEx and UPS and the major airlines are any indication, there are


aggressive efforts underway to upgrade truck and air fleets, which also includes
fuel-switching in ground vehicles.

Where It’s Headed We believe that workplace policy, demographic,
urbanization and pricing trends will continue to put downward pressure on the
use of private transportation. Non-motorized transportation, such as walking and
bicycling, will continue to grow as cities become more walking and bike friendly.
We expect to Although still a relatively small portion of commuting trips, the use of mass
see greater transit for non-work-related trips has grown significantly. In addition, walking and
development bicycling trips are significantly above the levels of the decade ago, in part due
to greater urbanization.
concentration in the
more vibrant areas We believe that urbanization trends of the U.S. population will continue,
though not necessarily in the denser central business districts (CBDs) that are
of larger cities that
considerably more expensive to develop. Significant opportunity remains in
will cluster around the CBDs of many of the northeastern U.S. cities that suffered population loss
the fringes of the over the last three decades. But in the near future we expect to see greater
existing fixed-rail development concentration in the more vibrant areas of larger cities that will
cluster around the fringes of the existing fixed-rail transportation networks, such
transportation as commuter rail, streetcars and subways.
networks.
We also see huge potential for new transit patterns being developed around
and between office parks and shopping malls where sufficient density exists.
On the vehicle front, one of the key takeaways from a 2012 KPMG survey of
global automotive executives is that we are beginning to move into an era of
car usership and out of the era of car ownership. This trend is consistent with the
overall global movement of the share economy, or what the VERGE speaker, Lisa
Gansky, calls “The Mesh,” the title of her 2010 book.
Key Players The ascendancy of car usership versus ownership is represented
by the strong growth in car-sharing fleets and programs as well as ride-sharing
options for both businesses and consumers. The website carsharing.net lists
more than 150 car-sharing organizations, from national networks like Zipcar to a
small local co-op in Traverse City, MI.

Region Car Sharing Program Types of Operations
Wide range from small co-ops to
U.S. Over 100 cities
large for-profits
Mostly smaller, local programs &
Canada Over 2 dozen cities
coops
Wide range from small co-ops to
Europe Over 50 cities
AND THE large for-profits
BUILT ENVIRONMENT

Middle East Israel Mostly for-profit companies
Asia Singapore Mostly for-profit companies
Australia &
Several cities Mostly for-profit companies
New Zealand

Several of these services have investments by the big car companies. For
example, carpooling.com, a website that facilitates carpooling for over a million
riders in Europe, and Car2Go both boast investments by Daimler. In Germany,
BMW has launched DriveNow a carsharing service featuring electric vehicles


and recently debuted the service in San Francisco. Ford and Zipcar have jointly
launched a program targeted at universities, and GM has investments with the
peer-to-peer company RelayRides. The large rental companies are also getting
into the act, with Hertz-on-Demand launching into a dozen cities.

City-Go-Round, which is funded by the Rockefeller Foundation, has an excellent
website (www.citygorround.org) principally dedicated to urban and suburban
It seems almost transit mobility that has almost 180 apps for transit (143) walking and biking (21)
an article of faith and driving (13).

that fuel prices and Yeah, But… It seems almost an article of faith that fuel prices and economics
dictate how much people drive. However, at the macro level, the data tells a
economics dictate
slightly different story. In the graph below, it appears that rising cost of driving
how much people is correlated with more driving. Ironically, cost and VMT curves track almost
drive. However, the identically, opposite of what is expected given the inverse type of relationship.
data tells a slightly These kinds of situations are what economists call “inelastic,” where demand is
different story. not heavily dependent on price. But it now appears that some sort threshold has
been reached. Perhaps there is some combination of driving costs, congestion
and the availability of alternatives that is damping down total mileage.

3,500,000 $10,000
$ 9,000
3,000,000
$ 8,000
2,500,000 $ 7,000
2,000,000 $ 6,000
$ 5,000
1,500,000 $ 4,000
1,000,000 $ 3,000
Annual VMT Sources: Cost of travel: American Automobile Association,
Your Driving Costs (Heathrow, FL: Annual Issues); VMT: $ 2,000
500,000 Cost of Travel (adjusted for inflation) Monthly Traffic Volume Trends, August 2012
$ 1,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2205 2006 2007 2008 2009 2010 2011

Annual VMT and Cost of Travel (15,000 miles) Trends29

Feet on the Street The Urban Land Institute and the LOCUS network of
Smart Growth America sponsored a study of the Washington DC area with
George Washington University (GWU) School of Business. It looks at the DC
area as a microcosm of urbanization trends over the last decade or so. The
basic thesis of the study is that regionally significant walkable areas will be the
principal location of economic growth in the metropolitan Washington, D.C.
area and, by extension, the rest of the country. Indeed, the U.S. Conference of
Mayors anticipates that over 90 percent of the growth in U.S. employment and
population will occur in cities.

Based on a 2007 Brookings Institution assessment of the Washington, DC
area, the GWU evaluation looks at two principal development types within the
Washington Metro region: drivable suburban and walkable urban areas. On
average, the walkable urban places (a.k.a. WalkUPs) are 15 times denser than
the drivable suburban areas with comparable real estate premiums for the
returns on equivalent amounts of land.


The study lists six distinct types of WalkUPs: 1. Downtown; 2. Downtown
Adjacent; 3. Urban Commercial; 4. Suburban Town Center; 5. Strip Commercial
Development; and 6. Greenfield. These six WalkUPs comprise less than 10
percent of the metropolitan area in Washington DC. Yet, since 2009, they
account for 48 percent of all of income-generating property (office, retail,
apartment, hotel) in the region, up from 34 percent in the period 2000-2008.

There is a 75 The GWU research found that WalkUPs are significantly more desirable and
significantly more valuable economically than drivable areas.
percent rental
premium for office • There is a 75 percent rental premium for office space in DC WalkUPs,
compared to the region’s average rents.
space in DC in
walkable urban • H
ousing for sale in DC WalkUPs is 71 percent more expensive per square
foot than the average of prices in the DC metro area.
areas, compared
to the region’s • O
ffice, retail, apartment and hotel space in DC metro area WalkUPs has
risen, from for 24 percent of new development during the 1990s, to 48
average rents. percent of all development in the cycle starting in 2009.

• W
alkUPs are host to a growing share of new rental apartment
development. In the 1990s, 12 percent of new rental apartment space
was built in WalkUPs, but in 2012 that figure reached 42 percent. The 43
regionally significant WalkUPs identified in the report account for about
34 percent of metro area jobs in DC. Three-quarters of the WalkUPs are
connected with rail transit to the broader region.

The Big Picture Information and communication technology (ICT) is enabling
change in the nature of consumption and ownership, which, in turn, is having
dramatic impacts on building and transportation asset utilization.

REGIONALLY SIGNIFICANT LOCAL SERVING
U.S. Metropolitan Land Use Options
Walkable Urban

WALKUP NEIGHBORHOOD
(Walkable Urban Place)
1-2% of Metro Area Acreage 3-7% of Metro Area Acreage
Drivable Sub-urban

BEDROOM
EDGE CITY COMMUNITY
AND THE 5-7% of Metro Area Acreage 80-85% of
BUILT ENVIRONMENT

Metro Area Acreage

Division of Metropolitan Land Areas Between Walkable and Drivable
DC: The WalkUP Wake-up Call, by Christopher Leinberger, George Washington University
School of Business, 2012.


After some initial (and ongoing) false-starts, ICT is beginning to catalyze the
remaking of the entire facility management industry. On the energy front, the
smart grid could have a potentially similar impact depending on whether the
intelligence is directed toward the building side (huge) or toward the utility side
(less significant) of the meter. Although buildings hold particular promise for the
efficiencies that can be realized from an ICT overlay, there is a mistaken belief
that ICT alone can solve the problem. It can’t.
Information and Communications: Catalyst & Enabler In sum, ICT tools are necessary, and hold considerable promise for the built
environment, but insufficient without cultural or structural changes.

The Drivers One of the cornerstones in the theory of economic efficiency is that
perfect information is uniformly available and that rational decisions are made
solely based on that information and not subject to the context.5 One of the key
explanations of economic inefficiency is the lack of information or information
asymmetry. The spread of fixed and mobile broadband is putting near real-time
information into the hands of more and more people.

ICT is helping reduce the risk to individuals or companies that just because you
don’t “own” resources such as office space or a car, it doesn’t mean you won’t
have them when you need or want them. This means it is not necessary need to
over-consume or “over-own” resources just to guarantee access.

The Impact: Buildings and Urban Development Although dashboards don’t
save energy by themselves, they give insights to building operators that can
lead to eliminating waste. When combined with experienced and skilled
building operators, these insights can lead to more efficient and effective
building operations, though we would argue extent of these energy “savings”
remains somewhat unclear. Most faults detected through dashboards and
analytics should be caught in the course of routine building management. At the
end of the day, it’s the human action that saves the energy, not the information
that revealed the need to act. Clearly, good management makes a difference
and improved tools simply improve management. We have argued elsewhere
that the main goal of building analytics is to prevent ROI, not to create ROI.

The impact of increasing building instrumentation and control, however, is a
different matter. Putting intelligence and control on the building side of the
meter — at the individual building or building cluster level — in our opinion, is
what the “smart grid” is all about. It’s up to buildings themselves, not the grid,
to tune the size of their energy demand to their own needs. This can be helped,
of course, by pricing information from the grid.

The ability to continuously and automatically commission and tune building
services to their exact needs not only reduces maintenance costs significantly,
AND THE
BUILT ENVIRONMENT

but also should lead to significant improvements in energy efficiency, with
the same caveats about “savings” noted above. In addition, soon we will see
building energy systems integrated and controllable down to the individual
device. Some highly tuned control systems are beginning to emerge, particularly
in lighting and crude space-by-space HVAC control.

Transportation The Telework Research Network estimates that economic

5 If you ever want to drive a conventional economist crazy, simply refer to the willingness to pay experiments
that show people are willing to pay vastly different sums of money for the identical product, simply because of
where they are purchasing the product.


savings of up to $10,000 per employee can be realized through a comprehensive
approach to telework. These savings range from increased productivity to lower
real estate costs and, on the employee front — you guessed it — lower gasoline
bills and car operating expenses. According to a survey of global automobile
executives done by KPMG, 63 percent think that convergence of TIME (Telecom,
IT, Media, Entertainment) and the auto industry is “inevitable.”

According to a Energy In an extensive study of the energy efficiency impacts of the smart grid,
survey of global Pacific National Northwest Laboratories estimated that reductions in electricity
sector energy and CO2 emissions could be reduced directly by approximately 12
automobile percent, while the indirect impacts would be approximately 6 percent.
executives done
Where It’s Headed
by KPMG, 63
• Transparency: ICT enables more freely available data and greater access
percent think that
to that information. Understanding operational data and how a building
convergence of is managed can help maximize resource efficiency. Information about key
Telecom, IT, Media, features, such as neighborhood walkability and amenities, is readily available
Entertainment and on the Internet, which helps focus and drive both residential and non-
residential investment. Eventually, people both inside and out will know much
the auto industry is more about the building in real time or in terms of reviews. The growing trend
“inevitable.” of benchmarking energy consumption and public access to this information
will play an increasing role in real estate markets. It is very easy to see how
savvy owners could promote their buildings based on publicly benchmarked
performance and “crowdsourced” opinions on conditions in certain buildings,
not unlike what happens now with restaurant reviews.
• Six cities: New York, Philadelphia, Washington DC, San Francisco, Austin,
and Seattle, have requirements for commercial buildings greater than 50,000
square feet to benchmark their energy use and to post it publicly. Some cities,
such as New York, further require that energy audits and retro-commissioning
efforts be undertaken. There are also some requirements for multifamily and,
in the case of Austin, single-family residential buildings at the time of sale, to
be benchmarked to help improve energy efficiency.

• Real-Time/Just-In-Time Management: Real-time data for building analytics as
a first step in moving buildings toward “autopilot” is a scenario in which the
traditional building operator could end up going the way of the telephone
operator. But simply because there are no longer any phone operators does
not mean that the telecom system runs itself. In the near future, different
skill sets will be needed in building management that combine the ICT with
hands-on field experience. This is not unlike the automotive industry, where
diagnostics is now done principally or increasingly by plugging in to the
AND THE dataport, rather than listening to the engine. However, the best mechanics
BUILT ENVIRONMENT

also know what to listen for, as well as how to read and understand the
computer diagnostic report.

Also in the near future, people involved with facility management would need
to have a significant combination of both ICT experience and mechanical
knowledge. One of our worries is that the rush toward building automation
and integration through ICT is getting ahead of the ability of the operations
and maintenance field to successfully provide enough people with the proper
skill sets to meet upcoming needs. This is part of the potential green job
deficit noted by McGraw-Hill in its green employment study. Management will


also need to rethink its approach to facility management, recognizing that
people will end up costing more on an individual basis though each individual
will be able handle more floor area eventually.

Automatic continuous commissioning will be able to monitor building
behavior and conditions that can be accessed by the building operations
team from anywhere in the world. Self-calibrating controls, or controls that
can be manipulated remotely, will increasingly replace manual and mechanical
controls, but some things will still need intervention and replacement.

• Demand Response: Demand response or peak load reduction is not really
“new,” with variants of this demand-side management strategy dating to the
1980s. The demand charge portion of commercial energy bills is growing
rapidly, so reducing power consumption is one of the most cost-effective

Year No. of
City Timing Activities
Started Buildings
Residential Buildings: Disclose
Reporting: audit results to potential buyer
Commercial Buildings >75,000 ft2
Commercial Buildings: Portfolio
June 2012
Austin 2009 Manager Benchmark
30,000-75,000 ft2 2013
10,000-30,000 ft2 2014 Multifamily Buildings: Reduce
Multifamily > 150% of average energy by 20% & disclose
performance
2011: City Buildings >10,000 ft2 Benchmarking
2012: Commercial Buildings Tenant Submetering
New York 2009 >50,000 ft2 ~24,000
Reporting
2013: Residential multifamily
>50,000 ft2 Retrocommissioning

Commercial building
benchmarking:
>50,000 ft2, October 1, 2011
San Francisco 2010 ~8,000
25,000-50,000 ft2 April 2012
10,000-25,000 ft2 April 2013
Audits begin 2013
Phase 1: Commercial buildings
Benchmarking
> 50,000 ft2 (April 2012 data
submission deadline) Tenant Submetering
Seattle 2010 ~24,000
Phase 2: Commercial buildings Reporting
>10,000 ft2 & Multifamily buildings
Retrocommissioning
>5 units.

2012: City Buildings >10,000 ft2

Washington still 2012: All Buildings >150,000 ft2
DC finalizing 2013: City Buildings >100,000 ft2

2014: All Buildings >50,000 ft2


actions any company can take to trim its energy costs. Typical demand
management measures include, among many others, letting building
temperatures float during peak hours, slight dimming of lighting systems,
reducing voltage at the building transformer level, and slightly slowing the
speed of elevators and escalators slightly.

However, it has only been within the last few years that the process of
It has only been demand response has been automated with both standalone and whole
within the last building software, such as building management systems. The modern
demand management industry has evolved from a customized, expert-driven
few years that the offering to one that is governed by automatic decision rules.
process of demand
One of the few bright spots in the automated software front, this activity
response has been quickly became commoditized. It has made strong inroads into building
automated with automation systems and has allowed more effective management of energy
both standalone costs and building peak loads, which are the principal driver of capacity
additions to the electric grid.
and whole building
software, such as • Collaborative Consumption: ICT also is the principal enabler of the rapidly
growing share economy (or “collaborative consumption” and “peer-to-peer”)
building automation movements that are beginning to have a noticeable impact on the more
systems. efficient and effective use of transportation and building assets.
• Gamification: Still in its infancy, but Gainesville Green is an interesting website
site (in beta, as of this publication) that shows what might be possible in the
future for tracking energy consumption. As a study by the American Council
for an Energy Efficient Economy noted, combining smart metering and user
feedback with the ability to compare consumption with peers is the most
powerful combination in reducing energy use.

Key Players

• Buildings and Energy: Groom Energy has by far and away the best
representation of the key software products that form the intersection
between buildings and the energy system under the rubric of their enterprise
smart grid evaluation services, so we will let the picture speak the thousand
words. (See graphic on next page)

Yeah, But…The Dilemma of Big Data Analytics experts at IBM’s Smarter
Buildings initiative have noted that a single decent-sized building can have
almost 10,000 data points producing meaningful information at 15-minute, or
less, intervals, producing nearly a million data points every day. EnerNOC, the
demand management and energy efficiency company, manages over 23 GB of
data per day across its 13,000 building network. This quantity of information
AND THE brings up several challenges:
BUILT ENVIRONMENT

• Verifying: Data is produced by sensors, which have been often sold on
lowest price, that are not terribly accurate or reliable. You know the drill:
garbage in, garbage out, and in a building with thousands of sensors,
that can be a lot of garbage.

• Storing: Much less of an issue now, except for that pesky cost thing.

• Managing: The next big challenge with this amount of data is that it
needs to be managed and analyzed in a way that can produce useful


Groom Energy’s Brilliant Graphic of the Building-Related IT Space

information. This is where building analytics and network operation
centers (NOC) have the greatest benefits, so long as the analytics and
NOCs are developed by or staffed with competent people, which
continue to be in insufficient supply.

• Interpreting: Alluding to the current and looming shortage of qualified
green professionals in the building sector noted by the McGraw-Hill
study mentioned below, the ability to analyze and interpret the data that’s
being provided is another challenge.

• Action: Often the Achilles heel of the Big Data dilemma, as many of the
dashboard companies have discovered to their chagrin. Just because
information is provided, does not mean that building operators have the
time or the training to respond to it.
AND THE
BUILT ENVIRONMENT


The Big Picture As technology and data intelligence spark convergence trends
in buildings, information and transportation, it makes sense to conclude with
the energy impacts needed to deliver lean, efficient new products and services.
When combined with a significant shift to electricity generation from natural
gas and the growing contributions of wind and solar, the overall impact of
convergence is a much lower carbon intensity, or the “decarbonization” of a
more intelligent energy system.
Energy: Smarter and Decarbonized As a result, U.S. carbon emissions in 2012 could end up as low as 1993 levels —
14 percent below the 2005 peak, and total energy consumption is approaching
1992 levels. The carbon intensity of the economy is at its lowest point since
comprehensive carbon emissions data has been gathered at an estimated 0.76
pounds of CO2 per real dollar of GDP, compared with the nearly two pounds of
CO2 per inflation-adjusted dollar in 1973.

The Drivers The principal drivers of decarbonization of the U.S. energy sector
are twofold. Most influential has been the significant shift in the national fuel
mix, which has been underway since 2005. The second element is the growing
embedded intelligence in buildings and cars that is fostering a multidirectional
“conversation” between and among individuals, buildings and the electricity
and roadway grids.

The change in the fuel mix has two principal components. First, the dramatic
shift toward wind and solar energy, which has grown by approximately 60
percent over the last seven years; renewable energy’s share of electricity
generation has grown from 8.5 percent to nearly 14 percent overall; and second,
the shift away from coal and residual oil toward natural gas.

Concerns about domestic energy security, as well as unmanageable climate
change, has resulted in a multitude of U.S. state policies promoting renewable
energy through the use of regulations that require a minimum percentage
of power supply be provided from renewable sources. As scale has grown,
renewable-energy costs — both from international and domestic producers —
have come down significantly.

Energy markets are becoming increasingly global, even for fuels such as coal
and natural gas. These global markets, in turn, are having an increasing impact
on U.S. domestic energy markets. On the fossil fuel front, coal prices have
risen dramatically, about 30 percent in real terms since 2005. This has been
driven by increased demand in China, rising mining costs as high-quality coal
becomes harder to find and mine, increased coal transportation costs and aging,
inefficient coal-fired power plants that are no longer competitive with modern
high-efficiency gas–fired equipment. At the same time, natural gas prices
AND THE have declined by almost 50 percent due to the rapid growth of the shale gas
BUILT ENVIRONMENT

resource.

Continuing declines in the cost of renewable energy technology, combined
with pending enactment of EPA regulations governing carbon pollution from
coal-fired power plants, is likely to prolong, perhaps even accelerate, this fuel-
shifting trend. It remains to be seen what impact environmental regulation and
deepened extraction experience will have on the shale gas resource and on
these price and fuel mix trends.


The Impact Total carbon emissions for the United States in 2012 are on track to
be 6 percent lower than 2011 figures, in spite of forecast economic growth of
about 2 percent. If current energy consumption trends persist, 2012 energy use
will be about the same level as in 1992, 3.6 percent lower than in 2011. Year-
to-date figures show energy consumption declines across all sectors, with the
largest decreases coming in the building sector. Compared with peak carbon
dioxide emissions, 2012 could result in about 900 million fewer tons emitted
than the 2007 peak year.

2012 commercial building energy is anticipated to be over 5 percent below the
2008 peak, while residential building energy could be as much as 10 percent
below its 2010 peak.

TOTAL US CO2 EMISSIONS (MILLION TONS)
6,000
5,000
4,000
3,000
2,000
1,000
1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010
2012 est
Total U.S. CO emissions
2
Energy Information Administration, Department of Energy, September 2012 Monthly Energy Review, Tables 12.1 and 12.7.

COMMERCIAL SECTOR CO2 EMISSIONS (MILLION TONS)
1,100

1,050

1,000
AND THE
BUILT ENVIRONMENT

950
2005

2006

2007

2008

2009

2010

2011

2012

U.S. commercial sector emissions
Energy Information Administration, Department of Energy, Monthly Energy Review, September 2012, Table 12.3. Carbon
Dioxide Emissions From Energy Consumption: Commercial Sector


TRANSPORTATION CO2 (MILLION TONS)
2,050

2,000

1,950

1,900

1,850 2005

2006

2007

2008

2009

2010

2011

2012
U.S. Transportation CO2 Emissions
Energy Information Administration, Department of Energy, Monthly Energy Review,
September 2012, Table 12.5. Carbon Dioxide Emissions From Energy Consumption:
Transportation Sector

Where It’s Headed We believe that for the near- to mid-term, the rate of
decarbonization will accelerate due to a combination of continued fuel-mix
changes and growing energy efficiency. With more than 1 gigawatt of solar
power coming online in California and the U.S. Southwest, the era of cottage
solar is over. For the foreseeable future, we expect that the energy intensity of
the U.S. economy will continue to decline, perhaps at an accelerated rate due
to recent sharp price increases and the adoption of policies and programs that
promote energy efficiency.

We do not see any letup in the pressure on fossil fuel prices due to continued
growing — albeit at a slower pace — demand in the developing world. To
the extent that economic recovery continues, its impact on total energy
consumption will be the result of the horserace between continued price- and
technology-driven efficiency improvements and increases in production.

Key Drivers In the industrial sector, energy pricing will continue to be the
biggest driver of energy and carbon intensity. However, in the buildings and
transportation sectors, we believe that a combination of regulatory push and
market pull will be the major influences.

The recently adopted fuel-economy standards will provide strong impetus
AND THE to car and light truck manufacturers to produce more efficient vehicles, and
BUILT ENVIRONMENT

impetus that will be strongly supported by continued increases in real energy
prices. For buildings and utilities, price signals will continue to be mixed but the
regulatory direction should continue to push firmly toward greater efficiency in
consumption for buildings and electricity production for utilities.

The trend toward benchmarking and reporting initiatives — spurred by groups
such as the Carbon Disclosure Project and the Global Reporting Initiative —
are moving to the built environment. Cities will be playing an increasing role
through the mandatory energy benchmarking programs that have been adopted
by several major U.S. cities, New York being the most prominent among them.


It is too soon to appreciate the impact this reporting will have on the actions of
building owners, but as we’ve seen in the past, companies are eager to be seen
at the top of such rankings — or at least not at the bottom.

Yes, and… Above we discussed the impact of energy analytics, demand
response, smart grid in the context of ICT and Buildings, but what about
smart meters? We believe that we will see some impact of smart metering
Smart meters are on residential energy use. In spite of pockets of resistance, smart meters are
approaching the approaching the magical 20 percent penetration level that usually signals the
beginning of mass adoption. Some forecasts put smart-meter penetration at up
magical 20 percent to 75 percent within five years.
penetration level
Our take is that smart meters are necessary, but not sufficient: Research by
that usually signals the American Council for an Energy-Efficient Economy indicates that real-time
the beginning of feedback programs have the potential to decrease energy consumption by up
mass adoption. to 12 percent, but that smart meters by themselves are not sufficient to result
in these kinds of savings. ACEEE found the most effective combination to be
persistent, regular feedback on energy use and benchmarking with neighbors.

If utilities were to further integrate energy efficiency with their smart-metering
programs, we believe they could have a very strong impact on building energy
consumption in the near to mid term.

Bright Spot for Renewables The combination of rapidly falling PV panel prices,
growing access to the utility grid, aggressive purchasing programs as part of
state renewable energy portfolio standards and increased credit for renewable
energy in LEED has led to a dramatic increase in building-integrated solar and
wind in just two years: from zero percent of of Commercial Sector renewable
energy to over 1.5 percent through mid 2012.

Although it remains tiny compared to the total energy use of the commercial
sector, the tenfold growth over the last 18 months is remarkable. Similarly, the
integration of wind energy in buildings has also grown fivefold during that
period. These trends are reflected in projects that are certified to LEED, which
have shown strong increases in receiving direct renewable energy credits.

COMMERCIAL SECTOR RENEWABLE ENERGY FROM
1.2%
BUILDING-INTEGRATED TECHNOLOGY
BIPV
1.0%
0.8%
AND THE 0.6%
BUILT ENVIRONMENT

Onsite Wind
0.4%
0.2%
0.0%
2011 January
2011 February
2011 March
2011 April
2011 May
2011 June
2011 July
2011 August
2011 September
2011 October
2011 November
2011 December
2011 Total
2012 January
2012 February
2012 March
2012 April
2012 May
2012 June

EIA Monthly Energy Review, September 2012, Table 2.3. Commercial Sector Energy Consumption


The Big Picture Concern over infrastructure is a little like concern over the
weather: Everybody talks about, it but nobody feels they can do much about it.
Most assessments of infrastructure quality in the United States give it very poor
grades. Indeed, crumbling conventional infrastructure will both be accelerating
and hindering the convergence trends described in this report.

Typically, infrastructure refers water, energy, transportation, and other large-scale
systems. There is no doubt that these “pipes, wires and lane miles” are critical
Infrastructure: Falling Apart in day-to-day commerce and overall quality of life. But because VERGE is about
integration across silos, we believe that a broader definition of infrastructure is
warranted. So we include information and communication technology and green
building industry expertise as “infrastructure.”

Based on the most recent infrastructure report from the American Society of
Civil Engineers, the overall infrastructure grade for the United States was a “D.”
This report was completed in 2009 and is likely representative of infrastructure
conditions in 2007–2008. Since 2009, the American Recovery and Reinvestment
Act of 2009 put about $100 billion dollars into improving energy, water and
transportation infrastructure, but that is miniscule compared with the $2.2 trillion
infrastructure repair and upgrade overhang estimated by ASCE.

Grade VERGE Impact
Bridges C Transport (direct); Buildings & Energy (indirect)
Dams D Energy (direct); Buildings (indirect)
Drinking Water D Buildings (direct)
Energy D+ Buildings, Transport, IT
Rail C Transport
Roads D Transport (direct); Buildings, Energy (indirect)
Solid Waste C+ Buildings (indirect)
Transit D Buildings, Energy, Transport
Wastewater D Buildings

Selected Infrastructure Category Grades and their Impact on VERGE Sectors
American Society of Civil Engineers, America’s Infrastructure Report Cards

In some ways, the fast-growing ICT infrastructure is substituting for, or at least
mitigating the need for, conventional infrastructure in transportation and, to a
less direct extent, energy. With new access to disruptive transportation options,
and as we tap energy efficiency as the “fifth fuel,” the infrastructure to deliver
AND THE these services will become increasingly important.
BUILT ENVIRONMENT

The Drivers Budget pressures and political tension between the state
and national level in the United States have conspired to take hostage the
maintenance of what we think of traditionally as infrastructure.

As the potential for ICT becomes more fully integrated into building and
transportation assets — on top of growing entertainment demands — the
burden on communication infrastructure will grow. Moreover, serious inequalities
between urban and rural areas and a generally below world-class level of service
will also put pressure on ICT corporate infrastructure.


Communications infrastructure outside of rural areas has been growing steadily
and government stimulus has helped bridge some gaps in the market. However,
a recent report from the New America Foundation found that U.S. broadband
access and speed was more limited than in several Asian and European cities.
Studies show U.S. cities ranking near or at the bottom from the perspective of
services received per dollar spent.

Based on conditions The Impact Based on conditions in 2009, the New America Foundation
in 2009, the New estimated that the annual cost of the deficient infrastructure in the United States
approaches $200 billion. Not surprisingly, the largest chunk (more than half)
America Foundation comes from the nearly five billion hours that Americans waste in traffic. Aviation
estimated that delays similarly cost Americans a considerable amount of time, while poor
the annual cost energy infrastructure results in excessive transmission and distribution losses and
deteriorated power quality.
of the deficient
infrastructure in the It is somewhat ironic that the economic loss attributed to America’s poor water
and wastewater treatment infrastructure is among the lowest of the eight key
U.S. approaches infrastructure categories investigated. The irony is that although the economic
$200 billion. losses are among the lowest of the categories, the cost to upgrade this
infrastructure will be among the highest.

Infrastructure Annual Efficiency
Category Loss ($ billion)
Aviation $33
Bridges $8
Drinking Water $3
Energy $25
Roads/Transit $115
Total $184

Annual Cost of Inadequate Infrastructure
New America Foundation: Costs of the Infrastructure Deficit

There is also a human infrastructure problem. A recent McGraw-Hill study found
that in both the design and construction fields, there is a strong belief that
there will not be adequate expertise or experience to meet potentially growing
needs as soon as 2014. In particular, given the projected rapid growth of green
construction as the recession recedes, the Smart Market Report envisions
a shortage of design and construction expertise in the green area, which it
projects will grow more rapidly than the construction sector as a whole. McGraw-
AND THE Hill predicts that as Baby Boomers approach retirement age, a fair amount of
BUILT ENVIRONMENT

experience and institutional knowledge will be lost; moreover, some believe that
work in the buildings sector is not as attractive to the incoming generation of
workers as it has been in the past.

There is no doubt green building will continue to provide opportunity for people
in the design, engineering and construction industry. But the question remains
whether there is enough opportunity to keep this industry expertise ready and
available when needed. Lack of expertise can cause issues with good integrated
design and engineering, which means that the savings opportunities from green


design and retrofit can be reduced. Indeed, we believe that the inadequate
intersection between people with expertise across ICT and buildings is why we
are likely to see the demise of many energy-benchmarking tool companies in the
near term.

Where It’s Headed Overall, the infrastructure picture is grim. There is a huge
price tag in providing what are generally accepted as public goods, where the
Deteriorating tragedy of the commons makes it justifiable to take out more than is being put
infrastructure will back in.

benefit services that For certain kinds of infrastructure, there will be something of a horserace
between the degree to which infrastructure services can be replaced or
are supported by IT
mitigated virtually – most likely in the roads/transit and energy categories – and
and accelerate the the degree to which they deteriorate.
asset consolidation
Continuing trends in deteriorating infrastructure will benefit services that
in buildings and are supported by IT and accelerate the asset consolidation in buildings and
transportation that transportation that are facilitated by this technology. It also could accelerate
are facilitated by some of the more demographic and macroeconomic trends in urbanization.

this technology. The biggest wildcard has to do with water and sewer infrastructure. Failure to
maintain this infrastructure adequately could affect development trends in the
built environment, particularly in a world with the potential for more frequent
and severe storms.
Key Players By its very nature, infrastructure is principally driven by government
entities, even though private companies may implement infrastructure projects
or policies. Thus, the principal players are those entities at the municipal, state
and federal level that regulate infrastructure.

In recent years, there has been a growing trend in privatizing certain types of
infrastructure, principally in the solid-waste collection and recycling industry.
However, there is growing privatization of water and sewer, with mixed results.

The 2006 U.S. Conference of Mayors resolution on green infrastructure is
intended to promote investment in natural systems to treat and store rainwater
and stormwater, as well as reduce urban heat islands. In addition, there is
concern by the mayors’ group that investments in transit and transportation
infrastructure will not keep pace with the growth needs of cities.

The National Governors Association in 2009 put together a vision document
for infrastructure in the 21st century that emphasized the need for innovative
financing, demand reduction as a means of making investments go further,
prioritization of environmentally beneficial alternatives and better coordination
with different agencies and levels of governments when delivering infrastructure
AND THE
BUILT ENVIRONMENT

projects.

Federal funding of infrastructure tends to play a somewhat perverse role in
the problem of its deterioration. Federal funds are almost never available
for maintenance programs, which means that states and municipalities are
responsible for shouldering the cost of operations and maintenance. In practice,
with deferred operations and maintenance, the need for capital improvements
accelerates, for which funding is often inadequate or unavailable.


Yeah, But… It is curious to note that communications infrastructure is not
included in this evaluation. The FCC produces an annual report on access
to high-speed communications, including broadband Internet. Generally,
the access to modern telecommunications infrastructure is weakest in the far
suburban and rural areas, principally due to the relatively low density and high
cost of providing the service. It is for this reason that the ARRA emphasized
these investments.
McGraw-Hill
projects that by Green Jobs and the Built Environment McGraw-Hill projects that by 2015 the
green building market size will exceed $120 billion, representing 48 percent of
2015 the green the nonresidential market. This means that nearly 900,000 green construction
building market jobs could be created in just the next couple of years. A significant minority of
will exceed $120 professionals surveyed for the report believe that having green job skills will
convey significant benefits. About 43 percent believe that more jobs will be
billion, with nearly
available for green skills workers, while 41 percent overall believe that having
900,000 new green green skills will result in better career advancement opportunities and almost 30
construction jobs. percent believe that greater job security will result.
Hiring experienced people, particularly in the construction trade, is forecast to
be these most significant personnel challenge in the near future. The survey also
found that having a professional certification conveyed significant benefits in
knowledge that can be applied on the job, as well as the opportunity for being
hired and advancing within the profession.

AND THE
BUILT ENVIRONMENT


In identifying some of the trends in this report, one big challenge has been
ensuring that they could not be dismissed with “It’s just the recession.” While
recent economic conditions have influenced some of these trends, our research
identifies fundamental changes that go beyond the recession’s influence.

Consider energy. There is no doubt that recent economic conditions have
affected energy supply and demand. However, we believe that there is more
going on here than simply dollars and cents. At the macroeconomic level, the
It’s the Economy, Stupid (or Is It?)

relationship between energy prices and behavior is much weaker than most
people assume, as shown in the figures below.

ENERGY COSTS PER MMBtu (all sources, Real $)
20

15

10

5

1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Cost of energy in Real Dollars per Million BTU
Energy Information Administration, Annual Energy Review 2011,
Table 3.3 Consumer Price Estimates for Energy by Source, 1970-2010

The inflation-adjusted cost of energy in real terms has varied fairly dramatically
over the last 40 years, in some periods doubling, and falling by as much as a
third during other times. Given these large swings, one could be forgiven if it
were supposed that overall energy use or the energy intensity of the economy
were also to vary widely. But, as we see in the chart below, this is not the case
when it comes to the energy intensity of the economy.

KBTU/$ GDP (Inflation Adjusted)
16
14
12
10
8
6
4
2
1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Energy Intensity of the US Economy kBtu/$ Real GDP
EIA DOE Monthly Energy Review September 2012, Table 1.7.
Primary Energy Consumption per Real Dollar of Gross Domestic Product


This chart shows that since the 1973 oil embargo, the U.S. economy has more
than doubled in efficiency (15.41 kBtu/2005$ GDP vs. 7.48 kBtu/2005$ GDP).
In spite of gyrations in energy prices both in real and nominal terms over the
past 40 years, the decline of energy intensity in the economy has been almost a
straight line, with a couple of small pauses around 1986 and 2009. To the extent
that the line deflects at all from a straight decline, it has mostly to do with capital
replacement cycles and the rate of GDP growth.

Not surprisingly, once a more efficient process has been put in, it stays in — until
it is replaced by even more-efficient equipment. Federal policy and standards
on appliances and equipment, as well as building standards, have been quite
influential in the building sector in entrenching efficiency gains by incentivizing
good equipment and ridding the market of the least-efficient technology.

As discussed earlier, some behaviors, such as driving, have been shown to be
fairly inelastic, but vehicle miles now appear to be substituted in some cases
with virtual access to work and shopping, even though the cost to drive 15,000
miles continues to remain below historic levels.

The extent to that there is a correlation between price and macroeconomic
efficiency, it appears to be weak. It is clear that there are other drivers, several of
which we have described in this paper.

What’s interesting is when you combine the two datasets to derive the energy
cost to create a dollar of GDP. As shown below, the real cost to generate a dollar
of real GDP has averaged around 13 cents over the last 40 years.

If macroeconomic price influences on overall energy use are weak, perhaps
microeconomic forces play a larger role. In real (inflation-adjusted) terms,
median household incomes have been declining overall since 1999, and today
are approximately at 1989 levels. It is tempting to assign some of the resource
consumption turnaround we’ve seen to the fairly rapid decline in median
household income (inflation adjusted), but if we look at the inflection points of
many of the sectoral trends, they do not precede or lag the income profile in any
predictable way.

REAL $ ENERGY COST/ REAL $ GDP
0.20

0.15

0.10
AND THE
BUILT ENVIRONMENT

0.05

1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Real $ Cost to Generate Real $ of GDP


Winston Churchill famously said, “We shape our buildings, then our buildings
shape us.” VERGE recognizes that this co–creation between human technology
and human society is going forward on a much larger and increasingly cross-
silo way as ICT breaks down barriers between the interaction of buildings,
transportation and infrastructure. There is also no doubt that this vibrant mash-
up of historically isolated sectors is reshaping the way we live and interact.

Although there is still a lot of “noise” resulting from the transition from an
Coda: Optimizing the Whole
extraction economy to a regenerative economy, we believe that a signal is
beginning to emerge in some of the trends we’ve identified in this report.

We firmly believe that all significant business and environmental opportunity in
the 21st century will come from understanding and exploiting the interactions
between multiple systems and optimizing the whole, rather than simply a
component or two. We believe that the dynamic interplay between large
systems can be influenced with approaches to problems that unravel multiple
issues with a single solution.

VERGE is about exploring, identifying and implementing the opportunities that
arise only when we look at the bigger picture. It is this integrated vision that
represents the clearest hope for a positive future, and truly sustainable business.

AND THE
BUILT ENVIRONMENT


Rob Watson is a Senior Contributor to GreenBiz.com. Described by Thomas
Friedman as “one of America’s best environmental minds,” Watson also serves
as the Chairman, CEO & Chief Scientist of the EcoTech International Group,
which delivers green building operations and design optimization, helping
companies and organizations to cost effectively minimize their buildings’
environmental footprint and operating costs.

Under Rob’s direction as the “Founding Father of LEED” and as its national
About the Author Steering Committee Chairman from 1994 to 2006, the U.S. Green Building
Council’s LEED rating system became the most widespread and fastest-growing
standard by which green buildings are measured worldwide. A pioneer of
the modern green building movement for 25 years, in 2007 Rob founded the
EcoTech International Group to meet the fast-growing global demand for green
building technologies and services. Rob is the 2013 recipient of the International
Award of Excellence in Conservation from the Botanical Research Institute of
Texas and a semifinalist of the 2011 Zayed Future Energy Prize for Lifetime
Achievement.

AND THE
BUILT ENVIRONMENT


Johnson Controls is a global diversified technology leader serving customers
About the Sponsors in more than 150 countries. Our 162,000 employees create quality products,
services and solutions to optimize energy and operational efficiencies of
buildings, automotive batteries, advanced batteries for hybrid and electric
vehicles, and interior systems for automobiles. Our commitment to sustainability
dates back to 1885. In 2012, Corporate Responsibility Magazine recognized
Johnson Controls as the #5 company in its annual “100 Best Corporate Citizens”
list.

As a global specialist in energy management with operations in more than 100
countries, Schneider Electric offers integrated solutions across multiple market
segments. Through our Smart City solutions, we deliver urban efficiency – today.
With more than 200 projects across the world, we know how to help cities
optimize their energy, transportation, water, buildings and services - and build
their future. We make smarter cities a reality.

AND THE
BUILT ENVIRONMENT


Since June 2011, VERGE conferences have traveled the globe, with events in
Shanghai, London, São Paulo, Washington DC, and San Francisco — all simulcast to
a global audience via a highly-interactive virtual environment. VERGE has brought
together thought leaders, business executives, city managers, and thousands of
practitioners energized by the opportunities created at the intersection of energy,
information, building, and transportation technologies.

About VERGE At VERGE conferences, presenters offer fresh perspectives on the innovative
ideas, convergence opportunities, and enabling technologies shaping our future.
You’ll learn about new innovations, real-world challenges, and what the future
holds within the four VERGE domains:
• Energy — Corporate energy management, demand response, policy and
regulation, integrating renewables, innovative financing
• Buildings and Facilities — Building, automation, smart cities, public-private
partnerships, and organizational change
• Information and Communications — Cloud computing, big data, open
platforms, M2M and the Internet of Things, analytics & actionable insight
• Transportation — Connected cars, vehicle-to-grid, V2V, peer-to-peer car
sharing, fleet management & logistics

Select speakers from previous VERGE events

Amory Lovins, Rocky Mountain Institute; Robin Chase,
Buzzcar; Dennis McGinn, ACORE; Tim O’Reilly, O’Reilly
Media; Jennifer Pahlka, Code for America; Daryl
Dulaney, Siemens Industry; Carl Bass, Autodesk; Jon
Wellinghoff, Federal Energy Regulatory Commission;
Melanie Nutter, City of San Francisco; Steve Case,
Revolution LLC; Alex Laskey, Opower
David Bartlett


Defining and accelerating the business of sustainability.

About GreenBiz Group GreenBiz Group is a media, events, and research company whose mission is to
define and accelerate the business of sustainability. It does this through a wide
range of products and services, including its acclaimed website GreenBiz.com
and e-newsletter GreenBuzz; twice-monthly webcasts on topics of importance
to sustainability executives; conferences and events, such as the State of Green
Business Forum, the GreenBiz Innovation Forum, and VERGE; research reports,
such as the annual State of Green Business and the Green Building Market &
Impact Report; and the GreenBiz Executive Network, a membership-based peer-
to-peer learning forum for sustainability executives. GreenBiz Group was co-
founded by veteran sustainability writer and speaker Joel Makower and B-to-B
publishing executive Pete May. Eric Faurot, who has built and run some of the
tech world’s leading conferences and expos, rounds out the executive team.

The GreenBiz Executive Network is a unique and powerful peer-to-peer
networking forum for senior sustainability professionals at large companies,
backed by the depth of GreenBiz and an experienced team of researchers and
facilitators. Visit www.greenbiz.com/gben to learn how to join the leading peer
network of companies driving the sustainability agenda.

AND THE
BUILT ENVIRONMENT


Verge and the built environment report

More Related Content

What's hot

Viewers also liked

Similar to Verge and the built environment report

More from Josh Develop

Recently uploaded

Verge and the built environment report