The proposed legislation will require the Leadership in Energy and Environmental Design (LEED) Gold standard for green building on all new private construction projects exceeding 20,000 square feet in San Francisco. The legislation would impose a considerable cost on San Francisco\u2019s economy in the short term, although this cost is projected to decline after five to ten years. The city\u2019s economy is projected to experience healthy rates of growth in output, income, and employment over the next twenty years, despite the costs imposed by the legislation.

Buildings are a major source of energy consumption and greenhouse gas emissions. The U.S. Environmental Protection Agency estimated that in 2005 electricity generation accounted for 41% of all CO2 emissions from fossil fuel consumption in the United States. Increasing the energy efficiency of buildings can therefore significantly reduce greenhouse gas emissions, and produce financial savings, from greater energy efficiency, greater reliance on green power, and other efficiencies in design and construction.

However, green buildings also have higher up-front costs of construction, at least in the short to medium term. Requiring these higher costs would reduce the overall level of construction, raise the price of rental and owner-occupied housing, raise commercial rents, and potentially discourage businesses from locating and expanding in San Francisco.

When both the higher construction costs, and long-term financial savings, of green buildings are considered together, the OEA projects an average cumulative loss to the economy, over twenty years, of between $66 million and $631 million on gross city product, between 265 and 2,476 jobs, and between $5 and $77 of per capita income. These figures represent a loss of from 0% to 0.5% of gross city product, 0% to 0.3% of employment, and 0% to 0.1% of per capita income. This range of estimates reflect the uncertainty regarding the construction cost premium associated with green buildings, and how long it will continue in the future. Beyond twenty years, the energy and water savings created by the legislation will likely create a net positive economic benefit.

The primary policy rationale for requiring green buildings is not to produce economic growth, however, but to reduce CO2 emissions. The proposed legislation is projected to reduce San Francisco\u2019s CO2 emissions by several thousand tons per year, with a cumulative 20-year savings of 882,000 tons by 2027. The OEA concludes, however, that the economic cost associated with these savings is relatively high in the short term. The carbon intensity of an economy is the amount of carbon it releases into the atmosphere per dollar of gross domestic product, and reducing carbon intensity is a way of reducing greenhouse gas emissions with minimal economic impact. The proposed legislation raises San Francisco\u2019s carbon intensity initially, because fairly modest CO reductions are associated with significant reductions to

The negative economic impacts of the proposed legislation can be mitigated in two ways. First, if the LEED Gold requirement were delayed or phased in over time, San Francisco could benefit from the falling cost of constructing green buildings, while only temporarily delaying the environmental benefits.

Second, the City might reconsider this form of \u201ccommand-and-control\u201d environmental legislation entirely, in favor of a market-based approach that created economic incentives for developers, building managers, and tenants to construct both green buildings and pursue energy efficiency programs in existing structures. One such approach could be a revenue- neutral shift in the city\u2019s tax structure towards CO2-generating activities, such as electricity, gas, and fossil fuel consumption, and away from income-generating activities, such as sales or payroll. Such a shift would discourage CO2 emissions, while at the same time promoting economic growth. By incentivizing consumers and businesses to find the least costly ways to reduce CO2 emissions, it could achieve similar environmental benefits with a much lower risk to the economy. It would also be more equitable than this proposed approach, which adds costs to new buildings but does not mandate any efficiency improvements in existing buildings.

Finally, this market-based approach could have the greatest impact on innovation and entrepreneurship in the city\u2019s clean technology sector. If businesses and consumers were free to find their own ways to reduce their carbon footprints, new patterns of living and working, new consumer demands, and new markets will be created here. San Francisco entrepreneurs will be well-placed to understand and capitalize on those trends, creating local solutions that could, in the future, be exported to other cities that have been slower to react to the threat of global warming.