Sustainable Architecture

I took a walk around the new Federal building with my friend Jim, an architectural critic. If you walk around San Francisco, you can't miss the enormity of the City's most recent edifice.

However, you might miss some of the environmental features of the building. Most prominent of the features: no air conditioning. What may be most notable about the absence of air conditioning at the new Federal Building is that it took so long to build a modern office building without air conditioning in a city known for its natural air conditioning system: fog.

To replace air conditioning, the building employees several emerging technologies. Many windows open automatically to cool off the building, especially at night. On the north side of the building (see photo), the decorative fins act as chimneys to vent hot air up the side of the building. The delicate building skirt on the south side provides a sunblock that reduces radiation absorption on the building's sunniest surface.

Removing the air conditioning also frees up space inside the building. Gone are the air conditioning machines, electrical panels, and ducts needed to cool most modern office buildings. Building maintenance costs change, too, with automatic window maintenance replacing air conditioning maintenance. Removing the air conditioning also requires more attention to building orientation, with as narrow a building as possible for natural air flow and lighting, and as little eastern and western exposure as possible for sun utilization.

Some of the energy saving features involve behavior modification of the building's occupants. The elevators, for instance, stop at every third floor rather than at every floor. In theory, these elevators deliver you to your desired floor more quickly when you take an elevator that goes to your desired floor because that elevator makes fewer stops on the way. Fewer elevator stops translates into more efficient use of elevator energy. It also gives occupants an incentive to use stairs to travel to floors only one or two levels away.

All-in-all, the building's designers estimate the building will use 50% less energy than a standard U.S. office building. Here's a comprehensive video on how the EPA built a sustainable building. It examines everything from site utilization to construction techniques to energy use.

It's difficult to pinpoint the start of modern architecture, but William LeBaron Jenney's innovate use of steel framing made possible the first skyscraper in 1885. By today's standards, the 10-story Home Insurance Building appears minuscule.

When it was introduced, the clear advantage of skyscraper design was building more office space on a given plot of land. Since 1885, improvements in design, construction, material, and building technologies have provided the ability to build practically any office building imaginable. While architects cram more and more usable space onto a property with all these new technologies, they have not created particularly efficient buildings.

Given the economic advantages of building sustainable buildings, how did the commercial real estate market arrive at a point where sustainability is so rarely incorporated in building design? An emerging idea is that financial markets under-value total cost of ownership for a structure. Three factors cause the market to discount ongoing operating costs.

First, since buildings are easily razed and replaced, investors sometimes value a property for its potential cash flow rather than its current cash flow. As the expected life time for a building shrinks, so does the value of reducing a building's energy use.

Second, the risk of introducing a new sustainable technology may outweigh its potential cost savings. For example, if you build a commercial building with elevators that stop at every third floor, do you decrease the building's yield because fewer companies want to rent in the building? Give an investor a choice between a known design that creates a predictable cash flow and a new design that may save money, and the investor will chose the predictable cash flow every time.

Third, the increased liquidity of commercial real estate in today's capital markets gives builders an incentive to complete a building quickly with technology that its subcontractors have deployed rather than new technology that may slow down a project. Faster construction translates into quicker sales and lower construction financing costs. Liquidity increases with commoditization, too, and so an innovative building may take longer to sell.

What pushes the commercial real estate market towards sustainable building? Many of the sustainable buildings in the U.S. are government buildings. Since the government, a very large owner of office space, maintains buildings for long periods of time, it discounts sustainability differently than the commercial market and places a higher value lower operating costs. The good news is that taxpayers will be rewarded for the government's rational risk-taking. The better news is that the commercial markets will be able to model innovative sustainability technology accurately, thus reducing the risk of these technologies in the commercial market.

Other emerging ideas include better sustainability standards and different finance instruments. One simple sustainability standard would be a measure of energy use per usable area, analogous to the government's MPG mileage standards for cars. If buildings were rated for typical energy use in, say, BTUs per square meter, a tenant could compare office space with some idea how much of rent goes to pay the power company instead of building amenities. Such an energy use standard might have all the same problems as the MPG used for cars, but it has the potential to improve significantly the information flow in the real estate market.

Building financing could be split between short-, medium-, and long-term owners. Short-term owners would assume "start-up" risk, including design approval, project management of the construction, and commodity prices for materials. Long-term owners would assume "market" risks, including changes in local business activity, interest rates, and energy and labor costs. By segregating the risks, rewards could be tailored for categories of investors. As importantly, long-term owners would weigh-in on sustainability.

Unfortunately, plenty of inefficient buildings will stand with us for decades. That should give government and commercial building owners who care about sustainable architecture more incentive to fix the market soon.


Update: Jim's take on the new San Francisco Federal Building.

Geotag, You're It!

Not so long ago, I bought a Canon Powershot A620 digital camera. I love the camera (another story, another time), but now I'm trying to figure out what to do with all the pictures.

The only problem with the camera is cataloging all the great pictures. An emerging idea is geotagging (a.k.a. geocoding), or including latitude and longitude information in a photo's metadata. Since most digital cameras already time stamp photos, adding a geotag makes it easy to find a photo if you can remember when and where you took it. Once I decided I wanted to geotag my photos, the problems began.

Geotagging is an emerging photographic technology. If you want to geotag your photos, the first thing you have to know about is photo metadata, or the data the accompanies your digital image in the file you think of as a photo file. The old metadata format is IPTC, the new metadata format is Exif. You might want to know that the emerging XML standard related to all this is XMP (eXtensible Metadata Platform). What you really want to know, though, is that Exif is the way to go for your photo metadata.

Deciding on Exif is the easy part. Soon you will be able to buy GPS-enabled cameras, but for now you need some way to insert the geotag in your photos' Exif metadata. Some clever photographers carry GPS handhelds, and take a picture of the latitude and longitude read-out whenever they take a picture. When you can use Google Earth to geotag your photos, though, carrying a GPS handheld seems a little cumbersome.

Deciding to use Google Earth to geotag your photos is the easy part. Then you have to decide where you will store your photos. Will you store pictures on your local computer (heaven forbid your disk crashes or someone steals your computer), or will you store your pictures on a web-based service like flickr or Picasa? In point of fact, Picasa is both a PC-based and a web-based solution, but the web-based part is a little behind flickr at the moment.

Deciding to store your photos online is the easy part. Then you have to figure out how you want to integrate your online storage with your cell phone camera, your blog, your geotagging software, your Mac or PC, and your computer's photo software (e.g., iPhoto if you're a Mac head). You might want to make Google Earth, Google Maps, or Yahoo Maps tours with your photos, too. This is where your brain might feel like a donut being twisted around a pretzel.

For instance, if you have a PC and want to use flickr, read about geotagging with Google Earth.

If you love iPhoto, or have all your snaps on iPhoto, you might want to read about how to move to Picasa, and about how to move to flickr and create a geotagged Google Earth tour (very cool and geeky).

For kicks, here is a seminal Engadget article on making Google Earth tours from your photos.

When everyone geotags and puts their photos online, the mash-up possibilities are great. I won't need to rely on the word tags people add to their photos to find, say, all the pictures of the Empire State building or the Golden Gate Bridge taken today or yesterday. Along with time stamps, I might be able to find out who was taking pictures at the same time and place I was. Maybe I'll find people who share my interest in locations like Moab, Utah.

My friend Brad puts everything on flickr and swears by it. My anxious side says, "don't use flickr because Google will figure out better ways to integrate Google Earth and Picasa" (both Google properties). If Picasa worked on a Mac, I'd take the Picasa leap in a second.

Over the coming year, Yahoo and Google will figure out how to integrate geotagging with their map and earth imaging services. That's probably the time to make the leap and decide where to park your photo inventory. When you decide that, you can tell me how to solve my legacy problem: what to do with all my old slides and negatives.


Update: here's another interesting GPS application. GPStimers makes a timer for lights or irrigation control that always has the correct local time, even after a power outage.

Where In The Web Are We Going?

KQED radio has been playing a recording of the Joint Venture: 2007 State of the Valley Conference program this week. If you can get the audio, I highly recommend Eric Schmidt's talk. Move the pointer about 1/2 through the playback to hear Schmidt's talk (although the 1st half of the broadcast is worth a listen, too).

Of course, Schmidt puts search at the center of solving all the problems of finding information, whether its in databases or on youtube. He also points to how mash-ups may start creating virtual mergers of companies. Some other highlights about end-user empowerment from the talk :

• It's going to be important in social networks to know who we're talking to and to understand how we might be manipulated.
  
• Language barriers go away as online translators provide real-time translations.
• What happens when a billion people use cameras (think camera phones) and document everything all the time?
  
• What happens to personal privacy in an always documented world.
  
• Users generate the content and become the content programmers.
  

Here's a video that sums up a lot of what Schmidt says in his talk (tip of the hat to Dennis):

Discounting Discontinuty

Elizabeth Kolbert, author of Field Notes from a Catastrophe: Man, Nature, and Climate Change, has an article in the New Yorker's Talk of the Town section this week covering reaction to the recent Intergovernmental Panel on Climate Change report. Some new lines are being drawn in the sand. The I.P.C.C. is more adamant about climate change and mankind's contribution to said change. The newly emboldened Democrats are holding hearings on climate change. The newest line in the sand comes from industry:

Four days after [House Speaker] Pelosi labelled the science of global warming “unequivocal,” James Rogers, the chairman of Duke Energy, one of the nation’s largest electric-power companies, said much the same thing at the National Press Club. Duke Energy is part of a new coalition, the U.S. Climate Action Partnership, whose members include Alcoa, DuPont, G.E., and Lehman Brothers, along with groups like the Natural Resources Defense Council and the World Resources Institute. At the press club, the coalition called on the federal government to enact a mandatory “cap and trade” system that would first stabilize and then begin to reduce CO2 emissions. “We know enough to act now,” Rogers said. “We must act now.” The coalition urged Congress to set a goal of cutting emissions by at least sixty per cent by mid-century.

I got to talking to my friend Brad about why the free market was failing to price climate change effectively. The price of oil fluctuates much more with the latest news from Iraq and the middle-east than news from either of the poles or Greenland about melting ice. The price of real estate, even with the recent market adjustment for higher interest rates, fails to discount for rising sea levels. The highest U.S. housing prices are in sought-after locations in cities near the rising seas. Does it make sense to buy a house on an island, whether it's Fire Island or Manhattan?

Brad, a Wall Street whiz, asked the obvious questions: how do you know the market isn't pricing the risk of climate change properly, and does the market ever fail to price correctly?

It got me to thinking about another article Kolbert wrote recently (January 22, 2007) in the New Yorker about Amory Lovins and his Rocky Mountain Institute. Lovins designs all manner of energy saving solutions for buildings, transportation systems, and other large scale energy sinks. The problem implementing the solutions often stems from "split incentives," explained here:

Take, for example, the electrical system of an average office building. "If we were to dig into the ceiling of most offices where the wiring is for the lighting, we'd probably find that the wire size was speced by the low-bid electrician to meet the National Electrical Code," Lovins told me. "The code says you need wire so fat for so much current. Well, it turns out that wire-size code is meant to prevent fires. What would be economically optimal in terms of resistance losses would be wire twice as fat, which means four times as much copper. Now, the electrician isn't going to pay your electric bills, right? If you had such an altruistic electrician that they were willing to put in four times as many pounds of copper to get you a one-year payback on your electric bills, they wouldn't get the job, because they wouldn't be the low-bid electrician anymore."

I learned another lesson in perverse economic incentives early in my career when I was consulting on electrostatic charging problems. An electrostatic charging problem you may know of is the problem where corn silos blow up once in a blue moon. As the corn descends in the silo, corn particles rub against each other and charge electrically. If two nearby particles charge enough in opposite ways, these particles discharge their electric potential in a spark that causes the dust to ignite. Because dust is formed essentially from particles suspended in air with a high ratio of oxygen to surface area, the ignition creates an very rapid combustion, and an explosion results.

It turns out that the same thing happens from time to time in oil tankers. When you wash down the inside of a tanker, the water and oil cascading down the sides of the oil tank act just like the corn in the corn silo. The company I was working for first approached the oil tanker owners about finding a way to prevent tankers from exploding during cleaning. The owners said they were just as happy to pay their insurance premiums as invest in a solution who's payback was risky. Then my former company went to the insurance companies. The insurance companies were just as happy to raise the premiums a little bit each time a tanker blew up since none of their clients were canceling oil tanker policies. Even the union representing the workers who cleaned the tankers declined to invest in a solution. Union workers' lives fit the same profile as oil tankers: precious, but insurable.

Markets are great at allocating resources in the short term when there is no information asymmetry between transacting parties. With full disclosure, an investor can discount future cash flows reliably and calculate the net present value of an asset. In the short term, for transactions that take place frequently, transaction history is nearly enough information to make reasonable pricing and allocation decisions.

Split-incentives and other perverse incentives keep individuals and corporations from making economically sensible long-term decisions. Climate change may be the best example of technology change creating information asymmetry and uncertainty that cause improper pricing. While Lovins correctly blames the split incentives for incorrect microeconomic decision making, an emerging idea is that rapidly changing technology effectively shrinks economic time frames and increases information asymmetry and uncertainty.

For instance, housing markets that are comfortable with pricing based on 20- and 30-year cash flow estimates may not have climate change on their radar. Lovins points out the split incentive problems that keep home builders from building economically (and environmentally) efficient houses. But it is technology change and its resulting information asymmetry and uncertainty that mess up housing prices. Home buyers may discount climate change improperly because climate change appears relatively distant or looks like a garden variety technology change. Building and encouraging use of lots and lots of inefficient cars, for example, deploys technology with unknown or difficult to predict environmental consequences on a mass scale.

More and more rapidly changing technology creates unforeseen market discontinuities more and more rapidly. If these unforeseen market discontinuities follow some normal distribution, many will be imperceptible in the market while a few will cause catastrophes. Growing human population compounds the impact of catastrophic market discontinuities. Climate change looks like a catastrophe in the making, but it is being discounted as if it were a technology discontinuity of the variety that causes an imperceptible discontinuity rather than a catastrophic discontinuity. Maybe that's because investors and consumers are more familiar with the smaller discontinuities.

The hard question: do we wait until the discontinuity like climate change occurs to let the market correct itself, or do we regulate?

This is where I think we can use some help from the economists as well as the climatologists. Carbon markets are one idea for using market principles to solve energy allocation problems, and these markets result from regulation. Governments would have to require companies and citizens to meet carbon dioxide output quotas. Taxing energy consumption and investing in renewable energy and energy conservation is another regulatory option that is not based on market methods. It is less effective for short-term allocation, but it increases chances for the kind of breakthrough R&D that occurs when scientists can work outside market constraints.

Because climate change may be just one of a handful of problems caused by technology discontinuities, economists studying climate change options may help us understand how to anticipate and respond to other future technology discontinuities. Pure market forces may not be the answer, but economists may be able to determine which non-market solutions will work for the kinds of discontinuities we are more and more likely not to perceive.


Update: You can now bet on whether global warming will flood coastal cities, make polar bears extinct, or other catastrophes. If you own coastal property, here's your climate change hedge.