Climate Change Legislation and Construction: Lessons from Colorado

By:  Steve Gockley, MOYE WHITE LLP

Colorado is nationally recognized as one of the leading states in the battle against climate change. As more states and localities consider climate change legislation, it can be helpful to look to Colorado as a possible bellwether. 

THIS ARTICLE FOCUSES ON RECENT COLORADO CLIMATE laws passed at both the state and local level that have or will impact construction industry participants at nearly every level of the construction process, particularly those involved in the buildings sector.

This article is not intended to provide a detailed exposition of the myriad ways the effort to reduce greenhouse gas emissions (GHG) affect the construction industry or the building segment of the industry. Instead, it is intended as an introduction to the subject matter. Many statutes and programs mentioned in this article could easily be the subject of separate, lengthy articles and presentations. Of note, this article is a snapshot of the subject as of the time it was written. Further developments may increase or ameliorate the effects of climate-change initiatives, and it is unwise to speculate as to how the GHG-reduction picture will change and evolve even over the near term.

Background

Many of Colorado’s recent climate laws are a byproduct of its lofty goals to curb GHG emissions established in 2019 through HB 19-1261, which set forth goals to reduce statewide GHG emissions from the 2005 levels by 26% in 2025, 50% in 2030, and 90% in 2050.¹ Since the passing of HB 19-1261, state and local legislatures and governmental agencies have established laws and enacted policies that impact nearly every sector and industry in the Colorado economy, including the construction industry.

Operational v. Embodied Carbon

Two primary sources of carbon are associated with the building industry: embodied and operational. Embodied carbon refers to the amount of GHG utilized in the manufacturing, transporting, installing, maintenance, and disposal of building materials and byproducts, while operational carbon refers to the GHG resulting from a building’s energy consumption.

Many of Colorado’s recent climate laws have focused on reducing operational carbon, primarily through constructing high-performance buildings or retrofitting old ones to achieve net-zero results. This is not surprising when considering that operational carbon is generally viewed as the more immediate threat because it contributes more to global GHG emissions than embodied carbon and is less difficult to mitigate through the legislative process. Governmental measures to mitigate embodied carbon require more targeted legislation focusing on a wider array of construction activities, including raw material extraction, fabrication, delivery, and removal, to list just a few, which requires more time, resources, data, and participation to enact meaningful and lasting change. While the state has already begun efforts to combat the impacts of embodied carbon associated with the construction industry, it is reasonable to assume, especially given Colorado’s track record, that more restrictive measures will be forthcoming.

The Built Environment

By present estimation, Colorado has approximately 6 billion square feet of commercial and residential buildings. To meet the lofty goals set forth by the state legislature in 2019, many of these buildings will need to decrease their GHG output dramatically.

Recent legislation in Colorado related to curbing GHG emissions in existing buildings has focused on first measuring a building’s energy consumption, a process also known as benchmarking. The thought is that by creating benchmarking programs, which require building owners to report a building’s overall energy use annually, those owners can better evaluate savings opportunities and prioritize investments in efficiency upgrades. In addition, local jurisdictions can better assess a building’s progress towards meeting GHG reduction deadlines and enforce penalties for non-compliance accordingly.

Colorado took its first step at establishing a statewide benchmarking program when it enacted HB 21-1286 in June 2021.² This bill requires owners of large commercial, multifamily, and public buildings of 50,000 square feet or more to report annual energy use to the Colorado Energy Office (CEO), with an initial reporting deadline of December 1, 2022. Additionally, the bill directed the CEO to appoint a building performance standards task force to meet sector GHG reduction targets of 7% by 2026 and 20% by 2030, below 2021 levels. The task force reported its recommendations to the CEO and the state Air Quality Control Commission (AQCC) in October of 2022.³ AQCC plans to establish formalized rules in 2023.

The City of Denver has gone a step further with the city council’s approval of what has been dubbed the Energize Denver Ordinance, which establishes an overall target goal
of achieving net zero GHG emissions for commercial and multifamily buildings—the city’s largest source of GHG emissions—by the end of 2040.⁴ The ordinance requires that owners of covered buildings with a gross floor area equal to or greater than 25,000 square feet to meet targeted energy use intensity (EUI) standards for that building type such that by 2030 the entire spectrum of covered buildings can achieve 30% total energy savings.⁵

Understanding that not all buildings start at the same point, the ordinance adopts a trajectory approach wherein each building will be subject to differing interim performance levels based on that building’s current energy usage and the final standards established for that building type. A baseline EUI is set for each covered building based on its 2019 energy use. Interim targets are then determined based on that building’s baseline EUI and the final EUI standard for that building type for the year 2030. Buildings starting from a lower baseline EUI will, therefore, have less stringent performance improvement requirements than those starting from a higher baseline EUI. The Office of Climate Action, Sustainability, and Resiliency (CASR) will establish interim energy performance targets for each covered building for 2024 and 2027. To establish the interim performance standards that each building will be required to achieve, the CASR will draw a straight line from the building’s EUI baseline to the final EUI standard established for that building type for 2030. Owners of buildings subject to the ordinance are required to report on an annual basis the energy performance information for that building to the CASR. By establishing interim targets, the trajectory approach provides owners of covered buildings with the information necessary to understand where a building’s performance level needs to be and the time frame by which an owner can adopt incremental improvements to achieve those milestones, thereby defraying the costs in doing so over time.

For owners of covered buildings with 5,000 to 24,999 square feet, the ordinance requires that owners either (1) certify that they have installed all LED lights or that they have achieved an equivalent lighting power density to what all LEDS would have resulted in or (2) install solar panels or purchase off-site solar that generates enough electricity to meet 20% of the building’s annual energy usage. Owners of these covered buildings must comply with the requirements by either 2025, 2026, or 2027, based on the building’s overall square footage.

New Developments

One of the primary policy solutions to reducing GHG in future development is through statewide or local building code amendments. Policies that effectuate forward-looking change are typically easier to establish than those looking to modify the existing landscape. The same is true for green initiatives related to new construction or major renovations, where local legislatures and governmental agencies look to effectuate meaningful change in their respective communities’ reliance on fossil fuels.

In a majority of states throughout the nation, building codes are established at the state level, requiring the local municipalities to adopt codes that are no less stringent than those required by the state. However, Colorado is a home-rule state, and therefore codes are adopted and enforced at the local level. Thus, there is a real question as to whether the Colorado General Assembly has the constitutional authority to mandate the adoption of statewide green building codes by home-rule municipalities.

Notwithstanding the constitutional implications, and to meet the state’s goal of achieving net zero GHG, the state legislature passed HB 22-1362,⁶ which requires the development of statewide model codes to be adopted and enforced by state agencies and local governments. The bill mandates certain agencies to work in consultation to formulate an energy code board tasked with developing two sets of model codes that will later be adopted by local governments and state agencies, including a model electric and solar-ready code by June 1, 2023, and a model low energy and carbon code by July 1, 2025. Additionally, the bill requires that the CEO identify model green code language for adoption by counties, municipalities, and state agencies.

While the bill leaves much discretion to the board in developing the model codes for adoption, it does mandate certain requirements that the codes must include for new developments, including, but not limited to, infrastructure requirements for electric-vehicle charging stations and solar panels. To be clear, the bill does not require the updated codes to include mandates prescribing that each new building construction project incorporate fully operational charging stations and solar panels, only the infrastructure necessary to add such features, such as adequate space to add charging stations and the conduit systems necessary to support their installation.

Once the board adopts the model codes, the act prescribes deadlines by which local municipalities and counties and state agencies will have to adopt and enforce the codes. Developers, design professionals, and contractors of all tiers should be aware of these deadlines and act accordingly.

Denver and a few other local municipalities in the state are already ahead of the curve, establishing model codes that already exceed those expected to be adopted by municipalities under HB 22-1362. In 2018, Denver enacted the Green Buildings Ordinance requiring owners of new developments of 25,000 square feet or more to select from options that would incorporate green initiatives into the building’s overall plans, including the installation of green roofs and/or green spaces, installation of on-site solar panels, or the purchasing of off-site solar energy, to list a few.⁷ (The ordinance also applies to roof permits for existing buildings 24,000 square feet or more and building additions of 25,000 square feet or more.) In early 2023, Denver is expected to update its 2019 building and green codes with the new building and fire codes to incorporate the 2021 series of international codes. Denver’s code amendments will likely be effective as of March 1, 2023.

Buy Clean

As mentioned above, embodied carbon is broadly defined as the amount of GHG emissions associated with the construction of a building or project, including the energy used in extracting, transporting, manufacturing, and installing materials. Certain materials commonly used in nearly all construction projects, such as cement, which is utilized in concrete production, require an energy-intensive manufacturing process. Cement manufacturing is widely considered one of the largest contributors to global emissions.

Some of Colorado’s GHG emission-reduction programs and policies had failed to adequately account for the operational emissions associated with the overall construction process. This changed in 2021 with the passage of HB 21-1303, titled Global Warming Potential for Public Project Materials, more commonly referred to as the Buy Clean Colorado act.⁸ Buy Clean Colorado promotes the purchase of construction materials and products with lower embodied GHG emissions, taking into account the lifecycle emissions associated with the production of those materials. The act mandates the Office of the State Architect and the Department of Transportation to establish policies for the recording and tracking of GHG emissions for certain eligible materials, including asphalt, cement, and steel, amongst others, with the Office of the State Architect to perform benchmarking that establishes the acceptable global warming potential for each eligible material. The law requires that contractors bidding for public projects submit environmental product declarations (EPDs), which some have referred to as nutrition labels for materials. EPDs will help the agencies assess the environmental impact of an eligible material through the lifecycle of that material and, therefore, assist the state in purchasing materials for public projects that are processed with lower amounts of embodied carbon.

By utilizing the state’s purchasing power to encourage private companies to reduce emissions to stay competitive in the Colorado bidding process, Buy Clean Colorado attempts to incentivize private companies to enact practices and invest in technologies that will reduce emissions for the processing, transportation, and installation of materials to be utilized in private projects as well.

Several other states, including California, Minnesota, and Oregon, have also enacted Buy Clean acts to promote the use of materials with a smaller carbon footprint on state-funded projects. In addition, through the Federal Buy Clean Initiative,⁹ the federal government is now taking steps to prioritize the use of American-made, lower-carbon construction materials on federally-funded projects. States with their own Buy Clean statutes are benefiting, and will continue to benefit, from the federal initiative through funding support and collaboration. For instance, the Department of Transportation recently announced that 25 states, including Colorado, will receive grants to support sustainable pavements.

Looking Ahead: Advice for Owners, Developers, and Design Professionals

Owners and developers should be mindful of these green initiatives and budget accordingly. Advocates of green initiatives believe that the upfront costs, if any, associated with either retrofitting existing buildings or constructing new buildings to comply with the current legislation and regulatory requirements will be outweighed by the long-term returns. But, for owners and developers who are already dealing with the inflationary state and rising material and labor costs, it may be difficult to see the proverbial forest through the trees. Moreover, they should be even more vigilant in reviewing contracts with project participants. Given the ever-changing landscape and the unknown, it is crucial for owners and developers to appropriately account for the risks associated with adhering to evolving laws, rules, and regulations through careful contract drafting and negotiation. The American Institute of Architects (AIA) has created a suite of sustainable contract documents to better define the roles and obligations of project participants in achieving a project’s sustainability requirements. In addition, the AIA has recently updated its Guide for Sustainable Projects—a resource which contains information on topics such as materials transparency, resilience, and EPDs, and includes example sustainability plans for LEED, WELL, and the International Green Construction Code. 

Design professionals, especially those with a cross-jurisdictional practice, need to remain apprised of the applicable laws and ensure they are not contracting to expand their duty of care beyond the common law standard of care. Often owners will attempt to contract for the design professional to perform above the common law standard of care. For instance, design professionals should be wary of contracts that require them to comply with all applicable laws, rules, and regulations. On the one hand, strict compliance may be impossible because applicable codes or laws often contradict one another and are otherwise constantly evolving. On the other hand, strict compliance exceeds the standard of care that would typically be insurable under a professional liability insurance policy. While avoiding contracting for an expansive standard of care should be a rule of thumb for every design professional in nearly every scenario, it is often secondary to executing the deal. However, with the evolving legislative and regulatory framework brought forth by the climate-change initiatives, design professionals must remain steadfast in the contracting phase to ensure they are not opening themselves to uninsurable liability. Moreover, design professionals should be adept in evolving their practices to meet the new demands of the green movements. Now, more than ever, owners and developers are seeking new and innovative ways to mitigate a project’s overall footprint and create sustainability. Staying ahead of the curve by investing in the labor and technology necessary to meet these demands will only make a design firm more attractive to a wider array of clientele.

Leaders in the building construction industry should stay apprised of, and even participate in, the ever-changing
and expanding landscape of statutes, codes, and rules that continues to impact the design and construction of buildings of all types including public and private, commercial, industrial, and residential. In Colorado, one way of staying up to speed is to register for the email lists established by state and some local jurisdictions, such as the Air Quality Control Commission,¹⁰ the Colorado Air Pollution Control Division,¹¹ and the Energize Denver program.¹² 

Steve Gockley is an attorney with Moye White LLP based in Denver. Steve has significant experience in analyzing and interpreting construction contracts. He advises clients during the construction phase on their rights and obligations under the contract and helps them avoid or otherwise prepare for disputes. Steve represents project owners, construction managers, design professionals, EPC firms, and general contractors in complex construction transactions. He works with high-profile clients on projects of all sizes—from contract formation through the course of construction and beyond.

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1. See 2019 Bill Text CO H.B. 1261. 2. See 2021 Bill Text CO H.B. 1286. 3. The task force’s recommendations and background information can be found at Colorado Energy Office, Building Performance Standards. 4. See Denver, Colorado Code of Ordinances Sec. 10.401 et seq. 5. Covered buildings are defined under the ordinance as any commercial or multifamily individual building in the City and County of Denver with the exceptions noted in Denver, Colorado, Code of Ordinances Sec. 10.400(d)(1). 6. See 2022 Bill Text CO H.B. 1362. 7. Denver, Colorado Code of Ordinances Sec. 10.301. 8. See 2021 Bill Text CO H.B. 1303. 9. U.S. Council on Environmental Quality, Office of the Federal Chief Sustainability Officer, Federal Buy Clean Initiative. 10. Air Quality Control Commission meeting information and commission calendar. 11. Colorado Air Pollution Control Division mailing lists. 12. Energize Denver Hub.