Pilot-Credits INpc113: Informing Design Using Triple Bottom Line Analysis 1 point

Submittals

General

Register for the pilot credit

• Participate in the LEEDuser pilot credit forum
• Complete the feedback survey:

Credits 106-115

Credit Specific

1. Output from the BCA of a study period of at least 20 years in the future (or the project’s useful life if it’s shorter). The outputs must include the follow-ing, using a real discount rate- the rate adjusted for inflation- of 7% (pro-jects may use an alternative discount rate if justification is provided):
   1. Net Present Value of the Financial/Economic Impacts, of the com-bined credits (Lifecycle Costs/Financial Value);
   2. Net Present Value of the Environmental & Social Impacts, of the combined credits;
   3. Net Present Value of the Triple Bottom Line Impacts of the com-bined credits (combines the Environmental & Social Impacts with the Financial/Economic Impacts);
   4. The Excel model or software analysis report (if used), including the outputs above, the inputs used in the analysis, and sources of as-sumptions and methodologies embedded in the software.
2. Descriptions for all LEED credits being analyzed, with specific reference to the inherent design features, technologies, or other elements that differ from the base case.
3. Studies referenced: a list of the resources referenced and empirical evi-dence used to create the baseline/base case.

Additional Guidance

LEED credits – As written in section 2 of the Requirements, a minimum of six credits must be selected at the discretion of the applicant, so long as they meet Requirement 2. Social and environmental impacts – As identified in section 4 of the Requirements, a minimum of five social or environmental costs or benefits must be selected from the following list for analysis in the BCA:

1. Productivity increases (building occupants)
2. Reduced attrition (building occupants)
3. Reduced sick-leave (building occupants)
4. Improved health outcomes (building occupants)
5. Reduced carbon emissions
   1. Reduced Greenhouse Gas emissions (CO2 equivalents, from sinks or sources that may include vegetation, energy use, vehi-cle use, embodied energy in materials, or solid waste)
6. Reduced air pollution
   1. Reduced criteria pollutants (nitrogen oxides (NOx), volatile or-ganic compounds (VOCs), sulfur dioxide (SOx) and particulate matter (PM2.5), from sinks or sources that may include vegetation, energy, vehicles, materials embodied energy)
7. Flood risk mitigation
   1. Due to increased use of rainwater storage (such as cisterns or rainwater harvesting) or pervious design features
8. Reduced heat island effect
9. Storm runoff water quality improvement
10. Social value of water saving
    1. Reduced demand for freshwater
11. Increased recreational value
12. Increased building occupancy rates
13. Reduced car or truck mileage
    1. Congestion, safety, road damage, vehicle operating costs
14. Increased active transportation (cycling, running, walking)
15. Enhanced aesthetics or streetscape – light pollution, general aesthetics, streetscape enhancements

The BCA must follow best practices. Examples are the general principles outlined in guidance from the US Federal Government around benefit-cost analysis, including Office of Management and Budget (OMB) Circular A-94, the document which provides guidance on US federal government BCA’s. To note, not all credits will have a significant measurable impact and/or suitable economic valuation literature to credibly be incorporated into the economic assessment; as such there is some discretion that needs to be given to those conducting the economic analysis. For this reason, and for the multitude of approaches that can be used given the nature of benefit-cost analysis, the guidance in this pilot credit is less prescriptive than most other pilot credits.

Conducting the BCA

There is much guidance that can be found regarding the specific steps to follow in con-ducting a BCA. There is no one prescribed approach that is recommended for this pilot credit; however, a sample generic approach can be found below.

1. Select LEED credits for analysis
2. Specify categories of costs and benefits to analyze
3. Quantify inputs for costs and benefits (e.g., change in energy use, as incremental to the base case)
4. Monetize annual costs and benefits
5. Discount future cash flows to calculate Net Present Value and other metrics
To clarify further, typically steps 4 and 5 above prove to be the most challenging. As this BCA includes the quantification and monetization of impacts relating to LEED cred-its, project teams must work towards identifying both the quantities of the impacts and appropriate valuation methodologies to monetize the impacts. The quantities are incre-mental impacts as compared to the base case of not meeting each LEED credit; corre-spondingly there is typically an incremental cost to each investment as well – it’s these incremental differences that should be accounted for in the analysis. While the incremental performance improvements of the proposed design versus the base case are already provided in the LEED submission documentation, additional effort needs to be made to identify what the additional costs (capital and ongoing opera-tions/maintenance) or differences in useful life would be. For this purpose, the use of cost estimation tools is permitted.

BCA Example

An example is provided below to provide some additional clarity. Office Building
1. General information – A new office building is being built and is applying for LEED certification. Energy models reveal that the building would require 63 kBtus / square foot-year, and the building will be 50,000 square feet. The baseline de-sign would require 79 kBtus / square foot-year. For the energy use in the baseline and in the proposed LEED design, the breakdown of energy use is 70% electrici-ty, 30% natural gas.
2. Select LEED credits for analysis – The building is including WEc Indoor Water Use Reduction and EAc Optimize Energy Performance in its LEED submission, so those will be included in the BCA. WEc Outdoor Water Use Reduction is not being included in the submission, so there are four discretionary credits that can be selected for analysis. The project team for this project decides to select SSc Rainwater Management, SSc Heat Island Reduction, EQc Enhanced Indoor Air Quality Strategies, and EQc Daylight credits to be included in the BCA.
3. Specify categories of costs and benefits to analyze – In addition to the financial impacts, the project team also decides to analyze how these credits might impact productivity increases, improved health outcomes, reduced carbon emissions, re-duced air pollution, and heat island reduction.
4. Quantify inputs for costs and benefits – In this project, the proposed design has a 20% improvement over the baseline. This implies that this credit may count for 8 points towards LEED certification. It also implies that total energy use is re-duced from the baseline to the proposed design by (79 kBtus / square foot-year – 63 kBtus / square foot-year) x 50,000 square feet, or 800,000 kBtus / year. Of that, electricity counts for 70%, and natural gas accounts for 30%, meaning that the building would realize electricity savings of 560,000 kBtus / year and natural gas savings of 240,000 kBtus / year. NOTE: In the case of EAc Optimized Energy Performance, the quantities above may be the only values required to run the methodologies in the BCA; however, the inputs required for each credit’s analysis may vary based on the impacts be-ing analyzed and the sources of the methodologies being used (i.e., software, consultants). For example, productivity increases may require information about number of employees in the building and exposure to daylight in different areas.
5. Monetize annual costs and benefits – First, the financial impacts are analyzed. Although there may be many elements that are leading to the energy performance improvements (e.g., improved HVAC system, greater insulation), simply the esti-mated total incremental values can be included in the BCA. Using a cost estima-tion tool, it’s determined that the incremental capital costs to achieve this credit are $500,000, the incremental non-utilities operating costs are $5,000 per year, utilities costs are reduced by $15,000 per year, and replacement costs overall are $30,000 lower over 20 years. Methodologies for the social or environmental impacts are then either developed internally, contracted out, or purchased from a software company to determine the value of the social and environmental impacts included in the BCA. The results for all six LEED credits in this BCA yield the following total annual results: Productivity increases for tenants: $50,000 / year Improved health outcomes for tenants: $20,000 / year Reduced carbon emissions: $10,000 / year Reduced air pollution: $12,000 / year Reduced heat island: $5,000 / year
6. Discount future cash flows – Once all impacts are monetized, the project team calculates the following net present value (NPV) metrics, using a discount rate of 7%: Capital costs: ($500,000) Non-utilities operating costs: ($55,000) Utilities costs: $165,000 Replacement costs: $30,000 Productivity increases: $550,000 Improved health outcomes for tenants: $220,000 Reduced carbon emissions: $110,000 Reduced air pollution: $132,000 Reduced heat island: $55,000 Final summary metrics: NPV of financial impacts: ($360,000) NPV of environmental and social impacts: $1,067,000 NPV of Triple Bottom Line: $707,000
Methodology Example – Electricity-Related Emissions A reduction in electricity required means a reduction in power consumed from the grid. Each power grid that supplies the area where a specific project is being developed, is composed of different mix of power sources (coal, oil, natural gas, hydroelectric, wind, etc.) and as such, each grid produces a distinct amount of pollution for every given unit of electricity (tons pollutants/kWh). The EPA eGRID collects and produces data on every generating station in the US, so electricity units (kWh) can be converted into emis-sions units (tons/kWh). Once the quantity of emissions reduced is identified, they can then be converted to dollar values through valuation methodologies ($/ton). This type of analysis could be done for other energy sources (e.g., natural gas, propane). For further guidance, please review the case study that was prepared to present an example of what a submission may include. There are many consulting firms as well as software tools in the market that can help project teams conduct an analysis for this pilot credit. Example Software

• AutoCASE: generates a software analysis report (https://autocase.com/). AutoCASE was created to automate cost-benefit analysis so that the financial, social, and environmental value of infrastructure and buildings projects can be incorporated into the design process.
• Business Case Evaluation (BCE) for Buildings: modeling in Excel used to analyze the business case of building project strategies.

Pilot Credit Background Information

Comprehensively assessing projects with a Triple Bottom Line, benefit-cost analysis (BCA) is an ideal approach to assessing the net impacts of sustainable design. Ideally, this Pilot Credit would reward teams using an objective, evidence-based approach as part of the design process for LEED-influenced projects. BCA is a widely-used, systematic process used to justify decisions and to provide a basis for comparing projects. Given the context of building/project design, this type of evaluation can add additional insight into the true value of sustainability elements and can be used to value the impacts of specific LEED credits. A distinctive feature of BCA is that both benefits and costs are expressed in monetary units, which allows a project team to evaluate different design options with a variety of attributes using a common measure. The objective of a BCA is to translate the effects of an investment into monetary terms and to account for the fact that benefits generally accrue over a long period of time while capital costs are incurred primarily in the initial years. In this context, the project team can link specific design elements, LEED cred-its, credit categories, or the project in general with specific outcomes. By measuring incremental benefits and costs of various designs and LEED credits pursued, a project team can determine the overall value of the sustainable design, or assess and prioritize the individual LEED credits that maximizes net benefits. The size of the net benefits - the absolute difference between the projected benefits and costs - indicates whether the design is more economically efficient than another. This analysis will allow a project team to be more informed as to the overall impact of sustainable design, as well as the life-cycle impact of sustainable design in a contextual and location-specific manner. In its essence, the goal is to create a business case for sustainable design, using this economic analysis approach to value the financial, social, and environmental impacts and to communicate this value in the pilot credit submittal.

Questions for Project Teams

• What materials, documents, and standards were referenced when establishing the baseline and conducting the analysis?
• Can you describe the role this credit played in the design of the project? How did it make a difference?
• How did the actual level of effort and cost of obtaining this credit compare to the perceived level of effort and cost?
• Which LEED credits were most challenging to analyze using this approach?