Colorado CRE Pros Worried About Pending Statewide Emissions Regulations

A proposed set of regulations aimed at reducing greenhouse gas emissions from large buildings in Colorado is drawing ire from commercial real estate professionals who argue the rules could dramatically increase capital expenditures for building owners at a time when the industry is facing multiple headwinds.

The proposed regulations, known as Regulation 28, would apply to buildings 50K SF or larger, and require building owners to reduce their greenhouse gas emissions by 7% by 2026 and 20% by 2030 compared to 2021 levels. The rules were established under House Bill 21-1286, which required Colorado’s Air Quality Control Commission, an agency tasked with overseeing the state’s air quality, to hold a rule-making hearing by June 1, 2023.

However, the proposed rules would exclude buildings like self-storage facilities, standalone parking garages or industrial properties that are primarily used for manufacturing or agricultural purposes. Marijuana grow facilities would be included in these exemptions.  

The AQCC will hold a public hearing about the proposed regulations on Aug. 15. 

NAIOP Colorado Executive Director Kathie Barstnar told Bisnow in an interview that one of the most troubling aspects of the proposed regulations is that it would significantly decrease the allowable energy use intensity for buildings like hospitals. 

If passed, Regulation 28 would require hospitals to reach energy use intensity, or EUI, levels of about 152 kBtu per SF per year, which stands for kilo-British Thermal Unit per foot, the common metric of measuring energy use.

However, Barstnar said there is not a single hospital in Colorado that can meet these requirements right now. Buildings that do not meet these requirements could be fined between $2K and $5K, although the time frame for these fines has not yet been determined. 

“I want my granddaughter to be able to enjoy the Colorado that we enjoy now,” Barstnar said. “But there has to be some realism to the rules that are being proposed.” 

Greenhouse gas emissions from commercial real estate properties have come under increased scrutiny over the past several years. A recent investigation by Bisnow found that 51 of the 75 largest institutional investors, REITs and investment managers neither track the emissions created by the tenants of their buildings nor the carbon created during the development of buildings. Colorado ranks No. 21 for its greenhouse gas emissions, and it accounts for just over 2% of the nationwide total annually, according to data from the Colorado Real Estate Alliance.

Cities and local governments across the country have adopted their own regulations to try and force commercial building owners to reduce their carbon emissions. For example, Denver passed its Green Roofs initiative in 2018 to require commercial property owners to draw power from renewable energy sources. Boulder also has its own energy conservation code. 

Denver Metro Building Owners and Managers Association Executive Vice President Stephen Shepard told Bisnow that Regulation 28 would be more restrictive than the local measures put in place. To that end, BOMA and other commercial groups are appealing to state regulators to add some flexibility into their target goals. For example, Shepard said he hopes the AQCC will waive fines for commercial owners that show they are working toward meeting the agency’s benchmarks, even if they miss the target in 2026. 

“As long as we can balance the aspirational with the implementable, then I don’t think these regulations will cause too many issues,” Shepard said. 

One building type that could see an outsized impact from the regulations is hospitals, according to U.S. Engineering’s project support director, Tom Poeling, because hospitals have much higher energy demand requirements than other building types. For instance, hospitals must have backup generators capable of powering the entire hospital at times when other buildings would lose power. But Poeling said that technology like solar panels is not strong enough yet to account for this energy demand. 

Poeling added that the renovation cost for hospitals is another factor that needs to be considered. Hospitals that are already close to meeting the Regulation 28 EUI levels may need to shell out $1M to $2M for renovations, Poeling said. But hospitals that are further away from the proposed targets could be facing renovation costs of between $40M and $80M, he said. That could require hospitals to “get creative” in finding funding sources for energy upgrades, he said.

“Hospitals seem to be getting doubly penalized just because of the nature of their energy operations,” Poeling said.