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Incentivize or Die

Leveraging tax breaks, gamification, and design to make buildings more sustainable

First, it’s time for some hard truths. Our buildings are destroying the planet. We are creatures of the indoors, we spend 90 percent of our time inside. Commercial real estate buildings alone are responsible for 40 percent of global carbon emissions. The two data points are hard to extricate from each other. After all, between circumstances we cannot control like weather or a global pandemic and our requirements for life like cooking, sleeping, and working, we need to be inside. We may be outdoorsy at heart, but our lives have evolved to an indoor existence.

So, we must focus on the other data point. The importance of reducing the carbon footprint of buildings isn’t new but we have learned a lot about it over the last 15 or so months as offices emptied out and rush-hour traffic ceased to exist. In fact, emissions from energy dropped by an unprecedented amount amid pandemic restrictions, equivalent to removing all of the European Union’s emissions according to the International Energy Agency (IEA). The decrease in commutes, flights, and other forms of travel had an incredible reduction of emissions by fuel, too. 

While the drop in emissions was the silver lining of an otherwise bad situation, the reduced consumption did not last as long as the pandemic. In December of 2020, global emissions started to jump back up and were actually two percent higher than in December 2019. IEA credits this to economic recovery and a lack of clean energy policies and experts worry that we’re bound to exceed previous emissions in 2021 at the current rate. With President Biden reversing climate-related actions by his predecessor, the United States and other countries around the world are pushing to see positive impacts from new legislation and initiatives. Central to Biden’s plan to make the U.S. net-zero by 2050 is halving emissions from commercial buildings through “deep retrofits that combine appliance electrification, efficiency, and on-site clean power generation.

The growing public sentiment about reducing carbon emissions has been getting more obvious for decades. The difference now is that businesses are getting the message. “Climate change is one of the most difficult issues of our time, requiring a collective effort across academia, technology, government, industry, nonprofits, and society to understand and untangle the complex web of cause and effect unfolding across the planet,” said Werner Vogels, CTO at Amazon. Amazon’s new ‘HQ2’ office in Arlington, VA has garnered a lot of attention for its climate-friendly design and integration of nature with workspace.

When it comes to understanding sustainability for any product, you have to think about the impact of its entire lifecycle. This is especially true for buildings. It isn’t only about how much power a building uses over the course of its life, but how much is needed to produce the building materials for it, construct it, tear it down, and dispose of it. This new mainframe was behind the design of the Powerhouse Brattørkaia. This Norwegian futuristic black aluminum office building, winner of the sustainability category in the 2020 Innovation by Design Awards, is built and operated in such a way that it will create more energy than it consumes, including construction and demolition. “There is an overall better mindset about being green that is about having a positive impact,” said Michael Wong, President and CEO of Genea, a property technology company. 

But while new, high-profile developments might turn heads with their sustainability, they don’t help the majority of the buildings in the world, the ones that are already built. The most sustainable thing to do isn’t to demolish older buildings because they don’t meet our new standards for efficiency. Rather we need to find ways and means to bring them up to par with our new sustainability standards.

Carrots and sticks

With many commercial buildings at reduced capacity last year, it was expected that emissions would also decrease. Therefore, it was surprising and quite frankly disheartening when electrical consumption for commercial buildings in the U.S. initially dropped by nearly 25 percent in May 2020 but, by the fall, climbed back to 90 percent of what it had been before lockdowns and office closures.

This wasn’t just a case of buildings being inefficient. Part of the issue was the service agreements that many landlords have with their tenants. “It’s common for leases to stipulate hours of service delivery, and that service delivery can be as detailed as we will deliver 70-degree Fahrenheit air to your space between these hours,” says Zach Robin, CEO of Hatch Data. For many building managers, there was not enough flexibility in the lease contracts or time to negotiate with the tenant to allow for settings to be changed. The ones that were able to implement new system settings saw a reduction to just 60 percent of their typical need. Even empty buildings don’t have the option of completely shutting down. Turning buildings “off” can lead to issues of mold, equipment degradation, or a handful of other health issues around indoor air and water quality. 

The average age of a commercial building is just about 50 years (52.67 to be precise). In 30 years, about 66 percent of the commercial buildings that exist today will still be standing. While starting from scratch may seem easier, retrofitting can be 40 percent cheaper. Owners can’t fight a bottom line like that. “Now is the time to outfit these buildings with every kind of telemetry, engagement, and reporting feature,” explained Phil Kopp, CEO and Founder at Conectric Networks. 

New York City has always been a flashpoint in the war on building obsolescence but the current political climate means that other cities and states will likely follow suit. “The federal narrative on clean energy is only becoming more emphasized and there will be more initiatives in the next couple of years,” said Kopp. “It may take a year to get in place, but within the next 12 months you’ll see a massive push from regulatory agencies and incentives. It’s the perfect storm of all of these things.” 

Federal buildings have looked at retrofitting, too. The GSA, a U.S. government agency, has roughly 8,700 buildings that, if retrofitted, would create $50 million in cost savings annually. However, federal or commercial buildings looking to save money are too late to benefit from tax incentives such as the 179D Energy Efficiency for Tax Deduction 18 program where the chance to make changes to qualify has already come and gone. While this program was specifically for tenants in government or federal buildings, it gave a tax deduction of up to $1.80 per square foot for the installation of lighting, HVAC, or building envelope that reduced energy consumption by 50 percent.

The carrot of cost savings isn’t the only reason we will likely see a rush to modernize old buildings, there’s also a number of sticks we wield as well. New York City now requires buildings to publicly post an energy-efficiency grade of A to F based on the U.S. Energy Star Score. “The letter grade was a way for that information to become very visible, not just for the owners, but for the tenants,” Gina Bocra said, Chief Sustainability Officer for New York City’s Department of Buildings. Buildings in NYC are responsible for nearly 70 percent of the city’s carbon emissions due to high requirements for heating, cooling, and lighting but also because of the older nature of their structures. 

If public opinion wasn’t big enough of a reason to upgrade buildings, the city is prepared to use a longer lever, the financial kind. Building owners that don’t upgrade their buildings by 2024 to the standards of the city’s Local Law 97 could be hit with tens of thousands of dollars of fees. This could add up to a lot of money, roughly half of buildings in the city have a D or F rating. “[NYC] buildings are now clamoring and struggling and rushing in an all hands on deck manner to figure out how they can start correcting systems or efficiencies that they’re building now so that they aren’t subjected to the fees,” said Alex Zafran, Senior Consultant at Aurora Energy. 

“There’s been gasoline thrown on the fire here with Local Law 97. What used to be a cost-savings value proposition, has also become a compliance value proposition where non-compliance is quite expensive,” stated Sonu Panda, CEO of Prescriptive Data. “Given that 40 percent of a building’s consumption is owner-operator driven while 60 percent is the tenant, a conversation is being forced about why is the owner-operator saddled with 100 percent of the compliance requirement when they only control 40 percent of the energy?”

So, with so much of a building’s energy consumption happening in a tenant-controlled space, the property industry has to find ways to nudge, if not downright push, occupiers to reduce their burn.

Keeping score

Getting occupants involved in reducing the energy consumption and carbon emissions of a building could create a collaborative or combative relationship with landlords, depending on how it is done. Before occupants can get involved, the current situation and the aspirational goals need to be clearly communicated. “Most people don’t understand what energy means when it’s expressed as kW on a bill,” according to Comly Wilson, Director at energy management technology provider Enertiv. “20,000kW of usage doesn’t mean anything to occupants,” he said. “But, if you express the consumption as an environmental equivalent like cutting down 800 trees, you’re going to get their attention.” Once occupants know the destination, it’s time to get everyone there by going in the same direction.

Providing the data to occupants is only the first stage in empowering them to save energy. “Occupants need to be prompted with ‘Why did you just book this conference room that requires AC because of the solar load? Here’s an opportunity to use this other room that requires less energy,’” explained Prescriptive Data’s Panda. “But this can’t happen until all of a building’s different building systems bring data into one place.” 

Another aspect of aligning tenants and landlords in their energy reduction role is creating more granularity. “More and more clients are adding, not removing submeters. They want granularity and, on a tenant level, they are submetering everything,” said Genea’s Wong. Fortunately, the more precise data is, the better it is to play with.

Technology using gamification is not new. Over a decade ago, FourSquare used it with great success when social check-ins on the platform led to badges and users becoming “mayors” of places that they checked-in more than others. While FourSquare has fizzled out, gamification has only become more mainstream. Pandemic leader of at-home workouts, Peloton, uses badges to entice users outside of their comfort zones with new classes, to take more classes, or to ride more miles than the month before or their friends on the leaderboard. McDonalds’ Monopoly game rewarded loyal customers with the chance to win prizes based on badges in the form of stamps. Duolingo, with over 500 million users, gamifies learning a new language with daily streaks, experience points and an earned in-game currency. Plus, the Scouts have used badges for years to represent achievement. 

And, who could forget Robinhood, the investment app targeted at Millenials that came under fire in late 2020 for gamifying investment through animations and an overall playful tone. The app, which also played a large part in the meme stock Gamestop phenomenon, is said to make complicated investments too easy and too fun. However, it’s not all bad—an analysis by E&Y said adding game-like aspects to financial services could help reach users who might otherwise feel reluctant to start investing.

What exactly is gamification? It’s the growing practice of applying structural elements, design patterns, and psychological insights from game design to other fields. A commonly used definition is as follows: “The application of typical elements of game playing (such as point scoring and competition) to other areas of activity.” It’s used in education, business, health, marketing and it’s starting to show up more in energy usage. In fact, understanding how energy suppliers can implement personalized gamification in their online portals and apps to incentivize energy savings among households is the topic of Laura van der Neut’s master graduation project at the University of Twente in the Netherlands. “For energy suppliers, [the project] is to explore the possibilities of personalized gamification to increase online engagement and to differentiate themselves from competitors,” explained van der Neut. “For customers, it can trigger motivations to start changing their energy consumption behavior.”

When occupants are responsible for their own energy bills, there’s a direct correlation between energy consumption and the financial impact on occupants. Opower, a customer engagement platform for utilities, used detailed home reports where consumers would receive a monthly bill with a comparison of other homes in the neighborhood. Opower found that solely based on this information, people would change their behavior to drive consumption towards the median, consumers didn’t want to be doing worse than average. The software also used smiley-face emojis on the reports of energy-efficient homes. The concept was catchy and efficient; Opower was acquired by Oracle in 2016 for $532 million.

Gamifying energy consumption has been shown to be an effective way to incentivize energy-saving behaviors in homes with savings of up to 24 percent. In van der Neut’s project, the personalized energy dashboard consists of various gamified elements such as progress, challenges, goal setting, comparisons, ranking, badges, points, levels, character choices, and energy metaphors. Users can play challenges to earn points and get to a higher level, increase in rankings, perform better in comparisons or earn badges. A bit different but aesthetically appealing, users can grow a plant or grow the ice floe around a polar bear depending on the number of points earned in challenges. 

We are all merely players

Gamification is different than most games. Most games are voluntary, but gamification plays off of the behavior-economic concept of nudge theory that proposes that positive reinforcement and indirect suggestions can influence behavior, if even on a subconscious level. “Whatever is working with games, whatever changes how we humans interact like addiction or excitement and more can be translated into areas of life that lack engagement,” explained Tiago Sizenando, Gamification Specialist at Gamiphy and Certified Game Thinking Coach. “But games need to be created strategically, with the right incentives, reward, and feedback mechanics so that players will behave accordingly.”

The dynamics of playing change in an office environment where applying the principles of self-determination theory is in a group setting. This theory states that people are intrinsically motivated to perform a task when it’s inherently pleasant, i.e. when doing a task feels good. The harder the challenge, the bigger the dopamine hit. When the task no longer brings pleasure, people have to be extrinsically motivated by something else. For example, remembering to turn off a computer monitor may not bring pleasure but the outcome of saving energy and winning the company competition will.

With this in mind, saving energy in buildings is in luck here. “Fortunately, people want to consciously make a positive impact on the environment but the habits need to be developed and built. Habits beat motivation every time,” said Jimmy Chebat, Founder at ZiZo Technologies. “Educating players why a game is important is the first step and then incentivizing them to build the habits you want to change is shown to be most successful through collaborative challenges.” 

Educating people about their behaviors can be done through a centrally-located real-time dashboard on television, like in a lobby, that shows building information such as energy consumption over time. Breaking a company’s floor into zones can create a bit of friendly competition and motivate others to reach out to leading zones to see how they’re getting better results. Creating collaboration in small teams is important as it’s already something participants are a part of. Avoiding feelings of missing out or letting down their team, players will want to push themselves, resulting in larger team achievements and even greater company-wide results. “As people help each other change behavior, the competition elements of the game become healthier, because in the end, we’re all in the same boat,” added Sizenando.

Once people are “in,” keeping them engaged is about clear KPIs, building leadership, and using successful triggers and rewards that are valuable to the building occupants. Good games pull players in and carry them through a journey that remains engaging with an evolving balance of challenges and a stream of actionable feedback. “Badges should be more of a symbol of progress,” said Sizenando. As the game continues, “eventually you won’t need gamification or the rewards,” added Chebat. How is the game won? The final reward is saving energy, saving money, and doing it all together as a team where all players and the environment wins. 

Bringing in another successful use case of gamification, the GPS navigation app Waze has proven that there’s more than one way to get to a destination. While tax incentives may be unattainable due to deadlines or requirements and retrofitting may not fit into budgets, gamification can be started immediately. Changing occupants from passive inhabitants of a structure into participating members of a community will have continuing good effects on their productivity, the company culture, and the overall feeling of the building.

But that’s not all it does, and it’s not the most important result. The changing climate is not going to press pause or restart on this game we’ve been playing as if we have endless lives. Truth is, we’re on our last life and if we don’t make this last chance a success, we will wish we had tried harder, tried sooner, and made it a priority. Our indoor lifestyles make it easy to put the outdoor environment on the back burner but there’s no escaping it; there is no easter egg to skip this level and jump to the next. Incentives from the government, ample technology choices to improve energy efficiency, and an overall desire from occupants to be part of a larger movement are all converging, and now is the time to power-up. While designing games that can help us save energy is not easy, we don’t really have a choice if we want to play or not.

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