Massachusetts Looks To Step Up Assistance For Developers As Green Deadlines Draw Near

Those assessing the costs of new green projects and retrofits are relying on state and federal incentives to help them make projects pencil.

Developers of new projects are already investing in electrification, and owners of hundreds of older buildings in Boston are planning out retrofits ahead of the city's first emissions compliance deadline next year.

But for many of them, there's an incentive gap that is hard to miss, and it could spell trouble as the city's 2050 net-zero emissions goal creeps closer.

State officials and clean energy organizations are ramping up the types of technical assistance and funding needed to make these projects work. And experts speaking at Bisnow's Boston ESG Construction & Development Summit said filling this gap is vital to move the needle and bring these developments forward.

"My view is that we're not going to BERDO our way to an electrified built environment without those resources," BXP Senior Vice President Ben Myers said at the Artist for Humanities Epicenter on Oct. 10.

The first emissions deadline for Boston's Building Emissions Reduction and Disclosure Ordinance starts in 2025 for residential buildings with 35 units or more and commercial buildings of 35K SF and up. Smaller buildings need to start complying with the ordinance in 2030.

Though more investors are starting to have conversations surrounding sustainability and compliance dates, it has been slow going getting them to help finance upgrades, especially retrofits for older buildings.

"I think a lot of people in the industry, owners of different types of buildings, are looking for resources because the demand signal from investors or clients hasn't been extremely strong to invest in existing buildings and the capital required to fully electrify," Myers said.

For many owners, electrification has moved down the chain of importance due to the daunting costs, he added.

"On new development, I think we've got this largely solved," Myers said. "But this existing stock, which we know 80% of which will still be here in 2050, [is] where we have the real challenges and need for resources."

The next round of the state's Mass Save program will be deploying more resources and technical assistance for owners just starting the process, said Katherine Antos, undersecretary of decarbonization & resilience for the state's Executive Office of Energy and Environmental Affairs.

"We're really trying to help create that map of here's what you need to do, and then, here are the resources that are available for that," Antos said.

The state received $19.9M in August from the U.S. Department of Energy to advance the state's building decarbonization efforts. Part of the funding will be used to push out draft regulations for its Large Building Energy Reporting, which will require owners of buildings 20K SF and up to report energy-use data.

The funding will also boost technical assistance for large building owners that want to start implementing decarbonization roadmaps. The state hopes to establish a building performance exchange similar to those in New York City and Washington DC to showcase best practices and resources for builders.

"It's really to create a community of practice," Antos said. "This learning is a two-way street. It's not just the state saying, 'Here's what you need to do and here's how to do it.' It's more of us hearing from you about where there are choke points and where there are challenges."

Antos said that there will be a focus on helping building owners in Cambridge and Boston meet compliance requirements in their respective cities.

Massachusetts Clean Energy Center has been working to differentiate between the deferred capital costs and costs strictly tied to the electrification of older buildings, with the idea of providing assistance and funding where it is most needed in mind.

The agency has two open programs, Roadmaps and Project Planning, for existing building owners looking to electrify and decarbonize properties. While it initially had funding for only 15 buildings across the state, the agency has managed to increase that to 70.

"It's a bit like we are trying to build the plane while we are flying," MassCEC Program Director Tom Chase said about trying to meet the needs of developers looking for resources.

For public developers, state funding has never been more crucial to make retrofit projects work.

The Boston Housing Authority has a mandate to make its roughly 96,000 housing units fossil-fuel-free by 2030.  The housing authority has also been tasked with building an additional 3,000 housing units in the next 10 years.

To accomplish those ambitious goals, the agency needs every bit of funding it can muster.

"We know that everyone who is a building owner is going to need support from multiple layers of government," BHA Deputy Administrator Joel Wool said. "It's not a simple one-stop-shop application for electrification or efficiency work or decarbonization."

Federal assistance that developers and owners can take advantage of now include DOE's Property Assessed Clean Energy programs and the Inflation Reduction Act, which has opened up several funding pathways, including the expansion of the 179D tax credit.

Yet, while developers can shop around several great incentives as they are planning compliance strategies, Nuveen Green Capital Director Mike Doty said there is still more to be done.

"The market moves to incentives, and this is a big problem," Doty said. "We have good incentives, but we don't have big incentives.

"There are pieces to this puzzle that I think provide the structure for this solution," Doty added. "They all need to be tweaked in one way or another to meaningfully shift the economics to change behavior, not just because it's the right thing to do, but because it makes good business sense."

BXP's Myers said that the return on investment for sustainability projects can be abstract, taking into account the future of assets that are difficult to understand and quantify. For long-term holders like BXP, taking on premium upfront costs is an easier investment than it is for short-term owners.

"It's a wager on the future value of these investments today, that they will pay back in that future," Myers said. "That has been fundamentally hard for the real estate industry to move on when they're looking at first costs and a mindset of short-termism."