Life Cycle Cost-effectiveness (LCC-effectiveness) – The New Federal Standard for Climate Resilient Projects

by | May 6, 2021 | Infrastructure, Resiliency, Sustainability

High performing building standards can take many forms and are offered through various certification partners that outline a list of credit requirements that developers must satisfy. With many varying certifications standards and best practices for assessing building compliance measures, the new Biden Administration is poised to standardize sustainability assessments by calling for the use of life cycle cost-effectiveness or LCC-effectiveness on federal projects. Here are a few key reasons why you should be measuring and prioritizing high value projects in your building portfolio:

  • Holistically measure the impacts (benefits and costs) of your development enabling the design to mitigate problems and maximize the returns of building design to the owner, occupant, and community.
  • Ensure consistent and transparent impact accountability to financial, social, and environmental stakeholders to inform all implicated decision makers and get buy-in on project design early on.
  • Prioritize funding for key design elements and worthy projects that drive resilience and maximize returns on sustainable investments.

In the past, the federal government has used a simple financial test for cost effectiveness, which often created inadvertent loopholes that perpetuated poor building design for the sole goal of financial efficiency. This sentiment was echoed in a recent letter to Gina McCarthy (National Climate Advisor to the White House) from 130+ Architecture, Engineering and Construction (AEC) organizations. The group of leaders explain that the current Energy Policy Act (EPAct) guidance calls for 30% better than current ASHRAE Standard 90.1 and to incorporate climate impacts into that calculation only ‘if life cycle cost effective’. Such vague guidance allows building designers to forgo the 30% reduction to a lesser savings target until financial cost effectiveness is achieved on the project. 

The Biden-Harris ‘Build Back Better’ plan is aiming to tackle these issues head-on by clarifying what impacts to incorporate in the analysis when assessing whether a building is deemed to be ‘cost-effective’. Early in the New Administration, President Biden signed Executive Order 13990 that calls for the accounting of benefits from reducing climate pollution using the social cost of carbon (SCC); denoting the social benefits of reducing greenhouse gas emissions. With a core focus on environmental justice, the new federal government is being guided by best science in order to prioritize and promote public health and environmental sustainability. By accounting for the externality costs imposed on society from polluted air and water supplies, federal policy can allocate funds to projects that provide a healthy space to reside for local communities and ensure resilience in the built environment. 

Further guidance was released by The Council of Environmental Quality in their report ‘Guiding Principles for Sustainable Federal Buildings’, which calls for the augmentation of the traditional life cycle cost analysis (LCCA) framework. The guidance states that cost-effectiveness should include the use of benefit-cost analysis (BCA or CBA) in accordance with the Executive Office of the President Office of Management and Budget (OMB) framework, along with the National Institute of Standards and Technology (NIST) and Federal Energy Management Program (FEMP) “Life Cycle Costing Manual for the Federal Energy Management Program” Handbook 135.

Sustainable Federal Building

The latest manual from NIST on life cycle costing recommends planners to account for the non-monetary impacts of building design, by including the environmental impacts or externality costs faced by society using a life cycle assessment (LCA). LCA is a scientific method that evaluates the environmental impact of sourcing different materials used in construction and calculates the pollution emitted from cradle to grave (i.e. from raw material extraction to product disposal at the end of the project). The results of the LCA can be monetized using the external costs of pollution derived literature (formally denoted as the SCC), which allows the LCCA and LCA of the building to be compared in dollars and cents. 

NIST lifecycle cost guidance also points to the importance of accounting for indirect financial impacts that fall outside the traditional LCCA framework, if they are deemed to have significant bearing on the outcomes of the project analysis. For example, the wages paid to building occupants often represent the largest financial cost accrued to building owners/operators and are pertinent factors that drive project returns. As noted in the NIST 2020 edition manual, space utilization can have significant effects on a building’s value and occupant comfort. Investments made in the indoor environmental quality should therefore account for the indirect impacts from occupant productivity gains, as well as reductions in absenteeism rates and associated health costs from sick building syndromes. 

When conducting sustainability assessments, the latest federal guidance places a strong emphasis on including the benefits of high performance buildings. More formally, the guidance “increases efficiency, optimizes performance, eliminates unnecessary use of resources, ensures the health of occupants, protects the environment, generates cost savings, and mitigates risks to assets”. Six overarching principles were identified to aid the federal government in advancing its mission to deploy sustainable buildings:

  • Employ Integrated Design Principles
  • Optimize Energy Performance
  • Protect and Conserve Water
  • Enhance the Indoor Environment
  • Reduce the Environmental Impact of Materials
  • Assess and Consider Building Resilience

Although more efficient building components may cost more financially upfront, there are also costs imposed on society if energy efficiency is not optimized – through higher electricity consumption and in turn elevated emission rates from the grid. In this context, the building’s design may be financially cost-effective, but when expanding the analysis to include all external stakeholders that are impacted, the decision to forgo energy efficient investments would no longer be cost-effective due to the high societal and environmental costs that likely outweigh the potential financial cost savings. By accounting for both the internalized and externalized impacts of inefficient buildings, LCC-effectiveness can appropriately attribute costs and benefits to all implicated stakeholders. 

Moving forward, life cycle cost-effectiveness should be ingrained into all private and public design practices to ensure that only the most deserving projects receive funding and that such projects drive equitable and resilient outcomes. From cradle to grave, the impacts of building design should be transparent and provide accountability beyond upfront financial costs and benefits. By assessing building design holistically through financial, social, and environmental perspectives, buildings can be optimized for climate resilience that maximize public benefits and minimize cost burdens accrued to all stakeholders.

Sustainable Design

 

Automate your business case with Autocase

Book a demo and leverage our expertise today