Policy Memo: The USA's Housing Department Should Inventory - and Slash - Emissions

To: Marcia Fudge, Secretary, US Department of Housing and Urban Development (HUD)
From:  Jennifer Gottlieb Elazhari, Member of the HUD Climate Task Force
HUD must implement measures that effectively respond to the urgent need to reduce emissions from fossil fuel-based emissions due to the urgently short timeframe that the world has to achieve greenhouse gas emissions (GHG) reductions to stay under the 2-degree warming threshold. This threshold represents the maximum warming that can be allowed after which the effects are irreversible and catastrophic.
Buildings account for 40% of GHG emissions nationally so GHG reductions from buildings are a major leverage point for climate change mitigation. In major cities, buildings contribute up to 70% of GHG emissions.  The HUD portfolio emits 19 million metric tons of CO2 annually. (HUD Policy, Development &Research)
In its $62.7-billion budget, HUD subsidizes 4.5 million units of housing in a portfolio directly owned or controlled through HUD partners. Furthermore, HUD resources are used by private developers through project-based vouchers and HOME funds. HUD has a great deal of power to drive the adoption of higher energy standards and capacity improvements in the building sector due to the widespread reliance on its resources.
To date, the Department has issued no mandates regarding building emissions standards in any of its housing programs and uses an outdated standard, the 2009 ICEE which was adopted in 2015. Most states that use energy standards in their building code have already passed codes with higher efficiency standards than HUD.  (Source: Office of Energy Efficiency and Renewable Energy, DOE, Status of Energy Code Adoption. https://www.energycodes.gov/status) . In addition to building code standards, thirty United States have adopted energy portfolio standards that mandate that a certain percentage of the electricity generated in that State be from renewable resources within a set number of years. This percentage mandated to come from renewables is up to 100% in some States. (Lawrence Berkeley Lab, PowerPoint Presentation (lbl.gov). Many cities have followed the example of New York City, which enacted a mandate on existing and new construction in 2017, that fossil fuel-based systems no longer be used. These systems are restricted from use in new construction and existing buildings have a certain amount of time to come into compliance.
To effectively use its influence to reduce greenhouse gas emissions in its portfolio, HUD must ensure that its significant resources do not help install systems that undermine emission reduction goals. On January 27, 2021, the President ordered all federal agencies to do everything within their power to advance the goal of meeting the nation’s commitments under the Paris Agreement through Executive Order 14008.
The National Climate Task Force states that to meet our obligations under the Paris Climate Accord, we must (1) reduce GHG levels to 50% below 2005 levels by 2030; (2) achieve a net zero emissions economy by 2050; (3) achieve 100% carbon pollution free electricity by 2050 and (4) deliver 40% of benefits from federal investments in climate and clean energy to disadvantaged communities.
HUD must not allow its investments to undermine emissions reduction goals as this infrastructure will be in place for decades. What we choose to invest in now is critical to whether the world locks itself into a high- or low-carbon growth trajectory. (Bhattacharya, Amar; Oppenheim, Jeremy, Stern, Nicholas, Driving Sustainable Development Through Better Infrastructure, Key Elements of a Transformation Program, Brookings Institute, July 10, 2015).  While some towns and States have taken the burden of leadership upon themselves in the absence of federal leadership on this issue, federal leadership is required if we are to achieve adoption and capacity that is national in scale and sufficiently broad in scope if we are to have any chance of meeting our goals. While federal leadership has been lacking due to gridlocks in the legislative branch of government, the HUD Secretary can enact certain effective measures with need for a new law and within the existing framework.
HUD must enact a mandatory requirement in its portfolio that new construction must meet Passive House standards and existing buildings should have a five-year phase transition period to comply with the Passive House standard. HUD should enact a Passive House standard for buildings that are subsidized by HUD funds. Like New York City, this standard should be immediate for new construction and should have a stated phase in period for existing buildings. The voluntary initiatives HUD has enacted to date have not been taken up by an adequate number of agencies. There will be no dramatic change in rehabilitation and construction practice among HUD partners if initiatives remain voluntary and there are no actual requirements imposed by HUD. The practice of replacing fossil fuel-based systems with fossil fuel-based replacements systems and using architectural and engineering firms that agencies have existing relationships with are practices entrenched in habit. Following entrenched habits is the easiest method of rehabilitation as it does not require use of new system typologies.

HUD must enact a mandatory requirement in its portfolio that new construction must meet Passive House standards and existing buildings should have a five-year phase transition period to comply with the Passive House standard.

This entrenchment is reinforced by the fact that passive house building practices and use of renewable and electrified building systems are novel practices among many HUD partners, there is a lack of knowledge about these practices among many partners, the new practices are perceived as more costly,  many partners lack knowledge of how to access financial incentives to make projects affordable, they do not have existing relationships with the specialized architectural and engineering firms that are skilled at Passive House. To further reinforce the entrenchment of old practices.  HUD partners are often struggling to maintain a basic level of service with poorly paid staff, aged infrastructure and a challenging resident population. To break the inertia of continual adherence to past practice, HUD partners need a mandate from HUD and HUD support to achieve the change to widespread adoption of new building practices that is needed to cut GHG emissions. HUD partners also need a bureaucratic framework to support the transition to new practices and technical and financial assistance. 
Use of Emissions Plans as Planning and Financing Tools
The Passive House mandate should cover all HUD subsidized multifamily housing in both the Multifamily and Office of Public and Indian Housing (PIH) Divisions. It is of note that the largest program in PIH is the voucher program that places project-based subsidies in developments that also contain units that are not HUD subsidized. These developments must be included in the mandate. The achievement of reaching Passive House standards should be the result of progressive planning and progress to take place over a five-year period. HUD partners in PIH are accustomed to submitting planning documents called Five-Year Plans and Annual Plans. They are also accustomed to submitting Five Year Capital Plan Budgets and Annual Capital Plan Budgets. Many agencies also base their Capital Plan budget on a professionally done Physical Needs Assessment (PNA).
The planning for transition to Passive House should be based on similar document called an “‘Emissions Plan” that will outline broadly and in detail the steps the partner will use to transition their portfolio to a building with reduced emissions. The Emissions Plan should require costs, benchmarks, and timelines as well as sources of funding so that the partner becomes accustomed to looking for utility incentives and grants.  These emissions plans should be reviewed by specialists at the Department of Energy (DOE) through a partnership between HUD and DOE. Alternatively, HUD can use a technical assistance contract with a Passive House organization to assess the Emissions Plans.
These technical assistance partners will also provide vital support in writing and revising the plans. The resource that oversees approval of the Emissions Plans should also oversee compliance with implementation of the Plans.  HUD field staff or the staff of the HUD Office of Energy and Environment (OEE) are also potential oversight agents. However, additional staffing, or staff reassignments will be needed if compliance monitoring for Emissions Plans is to be done within HUD. In the PIH programs, HUD can add line items in the HUD operating subsidy budget to assist with the cost of writing and implementing Emissions Plans.
Owners of project-based voucher developments have adequate profit to handle the cost of writing and implementing Emissions Plans but may protest within the housing industry if they are not afforded financial support. HUD may consider use of Inflation Reduction Act funds allocated to Multifamily to assist partners in writing and implementing Emissions Plans. The Emissions Plan will be a Five-Year Plan with activities and costs allocated each year in the case of existing buildings. For new construction or substantial rehabilitation scheduled in the near term, the Emissions Plan will simply be a component of the Building Plan and should not have incremental benchmarks.
Voluntary programs are ineffective to bring the needed transition to low/ no emissions buildings. It has been shown that giving actual benefits in the firm of points in Tax Credit funding applications for Passive House Building results in actual passive house projects being built in the States that award points in competitive processes. The market does not make the transition on its own without mandates and tangible benefits such as winning competitive funding. However, when it makes this transition, the cost of building to a Passive House standard can be somewhat higher than conventional building methods. After an initial period, the local AE and construction industries become more capable, and the prices of building to Passive House standards drop to be on par with conventional building.  In Massachusetts, passive house building prior to the adjustment was an average 2.5% more expensive than conventional building methods. (Beverly Craig, Mass. Clean Energy Center; Passive House Accelerator during a presentation to the CT Peer to Peer Network, 2021).
Elm City Communities in New Haven, CT has reported a 5% added cost to meet the passive house standard in new construction. During a Department of Energy Better Building Challenge webinar in 2021, Greg Hale of NYSERDA reported that after a time of capacity building in the construction industry, passive house building methods returned in price to come down to parity with conventional building methods.  Roadmap to Carbon Reductions in Mult https://betterbuildingssolutioncenter.energy.gov/webinars/roadmap-carbon-reductions-multifamily-housingifamily Housing | Better Buildings Initiative (energy.gov).
This points to the crucial role HUD must play in supporting the transition to clean building. A HUD mandate will result in the national adaptation of the construction business. After the initial learning period of the industry, it is assumed that these methods will form the new norm and prices will fall back to parity with conventional methods again. Novelty has a cost as companies seek specialized skills that are limited in supply. A HUD mandate will normalize adoption in areas of the country that are not likely to have strong state leaders in this area. HUD grants will also reward those who have led with grant funding to mitigate the cost of their initial investments. This will influence other areas to join with the leaders and institute stricter building standards as the construction industry will be better adapted and HUD grants will exist for cost mitigation.
HUD’s mandate will help HUD funded properties adjust to State and local mandates that are being instituted and discussed in States and Cities around the country. Over thirty States have renewable energy portfolio standards that require the utilities to obtain a certain percentage of the electricity generation from renewables with a goal in some places of 100% renewable sourcing by a certain year. In 2016, the Public Service Commission approved a Clean Energy Standard adopting a goal whereby 50% of electricity consumed in New York by 2030 would be generated by renewable energy sources (referred to as the “50 by 30” goal). The Clean Energy Standard is comprised of a Renewable Energy Standard and a Zero-Emissions Credit requirement.
In New York City, where 70% of GHG emissions are from buildings, the City's commitments to reduce emissions from the building sector include 100% net-zero new buildings by 2030, no fossil fuel hook-ups in new constructions and major renovations by 2030. There is a stated goal of 20% reduction in energy consumption for City buildings by 2025.
HUD should mandate that any building that benefits from HUD investment, including mortgage insurance, meet the 2021 IECC standard. It is within the Secretary’s power to advance an updated code for HUD investments. The Energy Independence and Security Act of 2007 (EISA) establishes procedures for HUD and USDA to adopt periodic revisions to the IECC and to the energy codes of ASHRAE, referred to as ASHRAE 90.1. For low-rise multifamily buildings, Pacific Northwest National Laboratory (PNNL) estimates an average incremental cost of adopting the 2021 IECC over the current 2009 baseline of $2,306 per unit.  

incremental Energy Savings Associated with Each IECC Version 2006 to 2021

A higher energy standard will negatively affect buyers in the single-family area that wish to use HUD mortgage insurance. As we do not want to place any more obstacles in the way for moderate income families trying to achieve homeownership, single family should be exempt from this energy requirement. However, a grant or declining loan program should be established in the Office of Single Family, providing families that use HUD FHA mortgage insurance with the funds to do energy improvements with a declining loan that is forgiven over a number of years that the homeowner retains the home, or with a very low or no interest rate.
There is powerful evidence that investing in low-carbon growth can lead to more prosperity, especially when considering the multiple co-benefits and lower risk of climate-related losses. (The Global Commission on The Economy and Climate. “Better Growth, Better Climate: The New Climate Economy Report”. September 2014. http://newclimateeconomy.rep) 
As the nation transitions to a new green economy, HUD should be at the front of this transition to ensure that its low-income residents have access to housing with lower energy costs. While HUD does provide a utility subsidy for families on its programs, HUD can achieve significant cost savings if the utility expenses are lower. These anticipated savings in utility costs can fund the grant programs for the construction cost differentials to Passive House and compliance with the 2021 IECC standard.
Additionally, as HUD subsidies are placed in developments that also house low-income families that do not receive direct subsidy or utility allowances, lower bills in the entire development will accrue to these unsubsidized low-income families. As a co-benefit, contractors will learn new skills which will be necessary for them to build to passive house standards in the greater market where HUD does not play a role.  HUD partners can negotiate for Section 3 training opportunities for participants on its programs and other low-income people so that they may also benefit from learning green building techniques which will be a growing part of our national economy.