A controversial new regulation approved Thursday by the Colorado Air Quality Control Commission is expected to cost owners of large buildings least $2.55 billion by 2030.

Late Thursday afternoon, commissioners voted 6-1 to pass Regulation 28, with Commissioner Randy Ahrens voting against the proposal and Commissioner Gary Arnold absent.

Under the regulation, buildings over 50,000 square feet would be required to reduce energy use by 7% by 2026 and by 20% by 2030. About 8,000 buildings would be affected.  

The commission faced a September 1 legislative deadline to enact regulations to achieve the General Assembly’s mandate for large building energy use reductions.

Building owners and management companies strongly objected, saying what the building energy standard really amounts to is a mandatory electrification requirement that unfairly applies to existing buildings as well as future construction.

But commissioners said the action was necessary.

“We’re doing this because there’s been a certain failure on the national level and I think maybe that’s the way this country’s going,” said commissioner Jon Slutsky at the hearing.

“The states have to chip in and take care of this business and other business. So, I came into this hearing with the idea that we were going to take care of building emissions. And as long as we take care of our legislative mandate that if we do more, that’s all right, I’m on board with that.”

Tyler Carlson, CEO of Evergreen Development, testified that Rule 28 will impose “significant energy upgrade costs on an already reeling industry.”

He said developers lack access to capital because “banks have dramatically tightened lending requirements and many landlords, because of the value losses, have little to no equity in their real estate, which means loans are unavailable to finance energy efficiency improvements.” 

“CC4CA members understand the critical importance of reducing carbon pollution and have adopted strong emissions reduction goals,” said Tricia Canonico, Fort Collins City Council member representing Colorado Communities for Climate Action. “Our members’ climate and sustainability plans all recognize that reducing emissions from the building sector will require a multifaceted strategy.”

Critics say the state made a pact with building owners when they constructed them according to the building codes in effect at the time. Now, they say, the state is breaking that pledge, which was the basis upon which business owners and individuals made investments in constructing buildings.

“The burden has not been met by the division to show that performance standards are achievable,” said environmental attorney Paul Seby, who represented the Colorado’s Department Association and the Apartment Association of Metropolitan Denver as well as the Pikes Peak Regional Building Department.

“The Colorado Apartment Association and several other parties have told you in detail, they assessed the achievability and the feasibility of complying with the proposed performance standards and the division’s response came back and tried to ridicule us for that.”

Questioned by commissioners about building performance regulations in other states and jurisdictions that APCD staff said have been enacted, Seby pointed out that the vast majority of such regulations only apply to new construction.

“They do not, unlike this proposal, apply retroactively. They apply to new buildings or modified buildings,” said Seby. “And why do they do that? Because that tracks 40 years of Clean Air Act law and regulation that distinguishes between performance standards for new sources and performance standards for existing sources.”

A representative of the healthcare industry said the costs for hospitals to make the required changes are very high and might result in hospital closures, particularly in rural areas.

“We could potentially be looking at a preliminary budget of around $500 million to $750 million to meet the targets for healthcare facilities alone,” said Tom Poeling, who represented the Colorado Association of Healthcare Engineers and Directors. “The price tag for compliance is a huge concern for our members and we are also concerned that the compliance costs that are published in the economic impact analysis may be understated.”

Colorado Energy Office Director Will Toor argued that there are adequate safety measures in the regulation for those who can prove it’s neither possible nor economically feasible to meet them.

Cities and various jurisdictions in Colorado have embraced the new regulation and some have already implemented building efficiency standards of their own, including Denver, Boulder and Fort Collins.

“We regard energy efficiency as the core of building performance with electrification is crucial for decarbonization, so we appreciate the incorporation of high efficiency electric equipment in the greenhouse gas intensity path,” said Colin Tom, a health strategist for Boulder County. “We really appreciate the division and CEO’s work to uphold the statutory targets and conduct a rigorous analysis that underlies those targets.”

Katie Schneer, representing the Environmental Defense Fund says the organization supports many aspects of the division’s proposed building performance standards.

“We believe that driving increased energy efficiency and electrification in buildings is important to support the state’s economy-wide emissions reduction goals,” said Schneer. “In addition, given that the state continues to be off track from its economy-wide reduction requirements, we urge the commission to move forward with the strongest possible building performance standard now because the state simply doesn’t have a margin for error and can’t afford to leave reductions on the table in this moment.”

Building managers said that commercial leases, which can be for 10 to 99 years, do not allow the landlord to control operating environments for the tenant by changing thermostats or regulating power use. This, they say, leaves only “very expensive capital improvements” as solutions.

Landlords, they say, will have the full financial liability for energy efficiency improvements without the ability to recover these costs by charging back their tenants even though the tenants will be the ones who enjoy a lower utility bill.

Dennis Supple, chapter president for the Denver Chapter of International Facility Managers Association, said that in order for his building to meet the energy reduction goal mandated for 2030, he would have to either shut down the building four days per week, turning off all heating, cooling and lighting or shut down the building for at least a year to make renovations.

The renovation, said Supple, would require removing and replacing all 480 windows in the building, removing the existing drywall and insulation, increasing the stud depth of the exterior walls, adding new insulation, changing all the electrical outlets on the exterior walls, and replacing the drywall.

“This is assuming there’s enough skilled labor available to complete this project in the 12 month timeframe,” said Supple. “Our projected cost for this project is almost $6 million. That amount is not currently available in my capital budget. We have done everything we can to bring our building into compliance.”

Commissioners at the hearing acknowledged that there are financial and time constraints involved that will make it difficult for many businesses to comply with the new rule, but with one exception they voted to enact the regulation.

Commissioner Randy Ahrens stated a preference for carrots rather than sticks in comments after the commissioners passed the regulation.

“I understand this is a legislative mandate, (but) I went back and looked and it passed the house 41 to 24, so it wasn’t unanimous,” said Ahrens. “I have concern with people that are already struggling with interest rates going up. Colorado has 14.9% inflation. We’re the highest in the country. And so, I have those concerns – people being able to make budgets.”

Ultimately Ahrens voted against the regulation.

Commissioner Phil Gonzalez said there was no real choice but to enact the regulation because of the September 1 deadline.

“I agree this is a very important piece of work in moving towards our climate goals and I share the concerns surrounding the impact on owners and, as commissioner Aarons mentioned, on tenants who are essentially an unrepresented stakeholder in this process and who are likely to eventually feel the burdens and impacts of some of these regs,” said Gonzalez. “But we’ve got to work within what we’ve been mandated by the legislature.”

Seby said in an interview in June that the Polis administration metaphorically grabbed the rule by the collar and the seat of the pants and is giving it a “classic bum’s rush” through the regulatory doorway.

House Bill 21-1286 was signed into law by Gov. Polis in June 2021. The commission published the proposed rule eighteen months later, on Jan. 20, 2023, allowing only 17 business days for affected property owners and the public to review, assess and respond to the original notice for proposed rulemaking.

“I’ll be considering how we can continue to ensure that flexibility exists and doesn’t just essentially steamroll the building owners in this regard,” said Gonzalez.

“I think we need to be cognizant of some businesses that need more fairness if you will, than others. Maybe there’s a place for wiggle room and where we go about talking to some of these business and have the idea that we’re not going to put anyone out of business,” said Slutsky.

“I’m concerned about the ability of CEO to implement this,” said commissioner Martha Rudolph. “I do think that there’s going to be a lot of building owners that are going to need to learn about this regulation that probably never even heard about it. So, all those things being said, I would support this apprehensively, but I would support this regulation.”

“This is a major new requirement for previously unregulated sources and that is perhaps in some cases going to be a little bit of a shock to the system,” said commissioner Patrick Cummins.

“I think that many of the concerns that we’ve heard from the people who own and operate and maintain these buildings – I have no doubt they’re real. We do have a climate crisis. We do have to start doing these things even though they are going to be hard, but Colorado is leading.”

“I heard clearly all the challenges – workforce supply, financing, the issues around the target climate zones and lease structures as a unique challenges,” said commissioner Curtis Reuter.

“But if we’re going to start working on decarbonization of buildings, we’ve got to start at some point. I recognize from sort of the industry’s perspective this isn’t a good time for that. At the same time, virtually every industry we’ve ever regulated said it’s not a good time for that.”