Global Hospitality Advisor: How Global Warming Laws Will Affect Hotels

Will California's New Legislation Set the "Standard" For the Country?

California is one of at least 40 States taking action to deal with “global warming” and “climate change” — the avant garde green edge of international environmental concerns. Adopted approximately one year ago, a new California law (commonly known as AB 32) amended certain provisions of the California Health and Safety Code and sent ripples through California’s business community. Many experts believe that AB 32 will become something of a national model or “standard,” as have many of California’s other environmental initiatives. Even by itself, however, AB 32 will dramatically affect the price of the fuels and electricity supporting California’s quality of life, the price of raw materials and consumer goods, and the very urban fabric, design, and “feel” of California’s cities.

AB 32 establishes a goal of reducing California greenhouse gas (GHG) emissions to 1990 levels by 2020 — roughly a 30-to-35% decrease from the current “business as usual.” Furthermore, by executive order, Governor Arnold Schwarzenegger has mandated that by 2050, GHG emissions are to be “capped” at 80% below those 1990 levels. AB 32 represents a sea change in regulatory policy, roughly bringing California’s climate change regulations into parity with the regulatory efforts made in other developed nations through the international Kyoto Protocol on climate change.

How Could This Affect Your Hotel?

Imagine maintaining your hotel’s current economic levels over the next 12 years, but emitting 30-to-35% less carbon than you currently do in order to reach 1990 levels… then imagine a further 80% reduction from those levels to meet the 2050 standards. What aspects of the construction and operation of your hotels emit GHGs? What were your GHG emissions in 1990? What if your hotel did not exist in 1990? In that case, who decides how much carbon you can emit now and how much you need to reduce? Where do your most cost effective GHG reductions come from? What are “GHGs” anyway?

Unfortunately, if you are only now beginning to consider all of this, you are (way) behind the curve. As a hotelier in today’s world, the time is NOW to consider the means by which you can meet the aggressive standards set by AB 32 as well as those that will be set by like-minded legislation in the future. For it is not a question of whether the hotel industry will feel the effects of climate change legislation, but when. Already certain industries (such as power generation, petrochemical refining, cement manufacturing, industrial/commercial combustion, landfills, etc.) are beginning to shoulder the greater responsibility for reducing GHG emissions, and their increased costs and limitations are bound to affect the hospitality industry at large. Think about it. What happens when your electricity or cement costs increase by 50%? What happens when the costs double?

That’s Where The Leadership In Energy And Environmental Design (LEED) Comes In

Helping to make “green” building standards the rule rather than the exception, LEED is becoming a de facto high-performance building standard, which incorporates more sophisticated site layout, building and system designs that use sustainable materials, and an approximate savings of 30-to-50% on energy and water consumption. As a result, a LEED-certified sustainable building supports a much smaller carbon footprint. Smarter designs, more efficient systems and recyclable or sustainable materials have already begun to play a prominent role in maintenance retrofits and new construction of other buildings, and it is high time that hotel development acts in kind. Needless to say, however, LEED construction requires careful consideration and planning before the first hardhat comes onto any property site.

Advantages, Opportunities And Strategies For Compliance With Green Legislation

Savvy hoteliers ahead of the regulatory curve are identifying competitive ways to benefit from environmental regulations and requirements. By doing so, they are reducing risks and uncertainties and setting the groundwork for the potential creation of marketable GHG credits, and finding advantages instead of disadvantages in compliance. Take note of the following:

Green development may generate cost savings. Because green construction is more cost efficient than green retrofitting, developers who introduce basic green initiatives (often for little or even no cost) can reduce their hotel’s operational costs from the start. According to Energy Star, a 10% reduction in energy consumption equates to raising your average daily rate by $1.35 for full-service properties and $0.60 for limited-service properties.

Hoteliers at the forefront of these requirements will gain brand and market advantages. Four of the five LEED-certified hotels worldwide are in the United States but this number is set to increase rapidly. For example, Starwood Capital Group has launched “1” Hotel and Residences in New York, which it markets as “the world’s first luxury, eco-friendly global hotel brand.” Such environmental credentials are increasingly important to customers.

AB 32 creates the opportunity to generate and sell emissions credits. Emissions reductions achieved in excess of those required under California law may create marketable credits which can be sold to offset infrastructure improvements. Opportunities are only as limited as the capitalistic imagination.

Land use planning and smart growth may create incentives for hotel construction. Many legislative initiatives encourage GHG emission reductions through entitlement and tax opportunities which favor new hotel and mixed-use project construction. Our European counterparts have valuable knowledge and we should use it. Hoteliers with international connections or “sister hotels” in Europe who have reduced their carbon footprint are there for American hoteliers to emulate.

Be proactive! Assemble a team of experts and develop a green strategy now. To take advantage of these opportunities (indeed, to even remain competitive), hoteliers should understand the carbon footprint of each of their current properties, and strive to make future developments as green as economically possible from the start. Properly prepared, a smart hotel owner or developer can reduce future liabilities and take advantage of current opportunities ripe for the picking.

Ian M. Forrest is a member of JMBM’s Global Hospitality Group® where he focuses on representing hotel and mixed-use owners and developers with environmental compliance, land use, entitlement, climate change law and energy concerns. Ian works closely with the Firm’s real estate and corporate practice groups to ensure the Firm’s clients understand and effectively plan for the complex suite of climate change legislation sweeping the nation. Prior to joining the Firm, Ian worked as an environmental consultant and in the development of the greenhouse gas emissions trading market established under the Kyoto Protocol and United Nations Framework Convention On Climate Change, international treaties to limit global warming. Contact Ian directly at 310.785.5389 or iforrest@jmbm.com.