Bryan Jackson

Bryan Jackson is a partner in the Los Angeles office of Allen, Matkins, Leck, Gamble, Mallory & Natsis LLP. He is chair of the firm's Green Building and Sustainable Construction Group and past chair of the Construction Transactional Group. He also edits Green Building Update, a weekly publication on green and sustainable building issues. Since 1990, he has served as an adjunct professor at the University of Southern California (USC). In the fall of 2008, Bryan taught the Green Building and Sustainable Construction course for USC's Master of Real Estate Development program.

Irrational Exuberance:  On Dec. 5, 1996, Alan Greenspan, then chairperson of the Federal Reserve Board, delivered the words "irrational exuberance" as part of his speech to the American Enterprise Institute. Many experts believe these two words in the middle of his 14-page statement caused immediate plunges in stock markets around the world. Our global collective mindset seems doomed by a bubble-building mentality. We speculate and build up a bubble in a promising area of the economy and then flinch fiscally as the bubble bursts. Consider the recent examples of the Dot-com bubble, the securitized real estate mortgage bubble, the Tiger Woods PGA golf bubble -- all causing painful deflationary nose dives when the over-valued bubbles burst. Computer-based sales, real estate, and golf are still good things, but their values have been slashed. Could the same thing occur with the green and sustainable construction market? Could irrational exuberance lead to overly speculative investments in un-tested technologies, building products, techniques, and certification programs that could all come crashing down in a harmful and stifling way to hamstring the green building market for years to come?

String of Recent Green Controversies:  A recent string of controversies in the green building arena may help the green building market avoid the irrational-exuberance tendency and cause us to carefully consider each green product, strategy, certification process, program, study, and effort with a more examining and steady eye. Some of the alleged controversies that have recently shaken the green building movement include the following: the Energy Star product-approval scandal; the climate science debacle; the Leadership in Energy and Environmental Design market-share slip; and the attack of CALGreen by various environmental groups. Each of these controversies is painful, but each may help curb irrational exuberance in green and sustainable building. Let's examine the most recent of these controversies in a little more detail.

The Energy Star Product-Approval Scandal:  The Energy Star controversy first began in 2008 when Consumer Reports¹ realized that many of the refrigerators they were testing were significantly less energy efficient than what was indicated on their Energy Star stickers. Due to loopholes and outdated testing standards, some refrigerators were Energy Star-rated at roughly half of their actual operating energy consumption. More than 95 percent of all dishwashers were receiving Energy Star ratings when the rate should have been closer to 50 percent. Part of the problem was that the manufacturers conducted the energy consumption testing themselves on more than 40,000 products. Then last month, a sting operation conducted by governmental auditors came to light. The auditors, posing as fictional companies, received Energy Star ratings for more than 12 bogus products.²

Perhaps as a result of these scandals, on March 19, 2010, the U.S. Environmental Protection Agency (EPA) and U.S. Department of Energy (DOE) announced that along with recently implemented third-party testing protocols, additional steps would be taken to strengthen the Energy Star program.³ First, more than 200 basic models of freezers, refrigerator-freezers, clothes washers, dishwashers, water heaters, and room air conditioners are being tested by independent laboratories. Second, EPA and DOE are developing a system whereby all Energy Star products will be subject to ongoing testing to verify continued compliance. Finally, the two federal agencies are enforcing standards with compliance actions brought against 35 manufacturers.

Conclusion:  Accordingly, while the scandal has been painful, good things have resulted. EPA and DOE are working harder to restore confidence in the Energy Star sticker. Furthermore, their actions will help Energy Star do what it was designed to do -- incentivize manufacturers to create more energy efficient products and allow buyers a convenient and educated approach to choosing energy efficient products over other less-efficient alternatives. Finally, on the bubble front, investment in green products hopefully will continue to be made in increasingly more efficient products that are not simply "greenwashed" by an easy-to-obtain certification process but are truly more efficient based on tighter standards and third-party verification.

¹ See ConsumerReports.org, October 2008, "Energy Star Has Lost Some Luster; The Program Saves Energy But Hasn't Kept Up With the Times"

² See New York Times, March 26, 2010, "Audit Finds Vulnerability of Energy Star Program"

³ See U.S. Department of Energy website, "March 19, 2010, EPA, DOE Announce New Steps to Strengthen Energy Star"