President Barack Obama The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr.

President:

August 8, 2013

Re: Climate Change A Proposal to Make Major Progress to Reduce GHG-Emissions from Buildings by Streamlining Processes. Please consider this an open letter. I may send copies to such federal and New York agencies and officials as may seem relevant given the topic, and/or the press, and/or publish the information online. There are a few very simple steps your administration could pursue that would unlock the forces of change to reduce GHG-emissions without any need for major funding. Such action would also go a long way to shoring up real estate markets and boosting long-term

-2-

economic competitiveness. These steps would entail both the radical simplification of many subsidies, incentives and programs, along with the proper use of financial solutions such as PACE bonds. These and other vehicles can be used to provide the financing to meet upfront capital requirements for renewable retrofits and to build asset values in real estate markets. In order to achieve these real estate value-enhancing goals, we would need to abandon all subsidies and incentives for specific technologies, such as ITC for Solar PV( but not for certain other technologies which might be superior fora given building) . By targeting the incentives to property owners for GHG emissions reductions for individual buildings, instead of by technologies used, tremendous creativity will be unleashed. Any engineer experienced in this field has seen optimal solutions rejected because some accountant comes along to point out a tax credit on one technology versus another. Very often, wrong solutions are specified to qualify for incentives. Imagine how much better we could do if a 30% ITC were awarded pro-rata for 50% reduction in GHG-emissions in a building. Perhaps even award extra percentage point for every 10% above 50% reduction. Things would change quickly. This problem gets really out of hand when finance programs target specifics such as the use of Energy Star rated equipment. Sometimes, the wrong equipment will be selected because the financing depends on it. Again, the incentives should be based on the overall goal of reducing GHG-emissions at the property level. There should be simple, agreed regional standards for such improvements and the related financial computations.

-3-

This building-focused approach has been proposed by us in our publication, the DaBx Renewable Energy Retrofit Portfolio Standard (copy enclosed) and is available with supporting references here: http://www.vliscony.com/2013/06/12/dabx-renewable-energyretrofit-portfolio-standard/ Also, our proposal has been published in our report to New York City, DaBx PlaNYC2020, in the new 2013 edition, available here: http://www.scribd.com/doc/58761637/DaBx-PlaNYC2020-Draft A copy will be gladly provided upon request.

The individual issues referred to above have been discussed extensively on my blog at www.vliscony.com and in the annotated version of the DaBx Renewable Energy Portfolio Standard for MultiFamily Buildings. As previewed earlier, pressing issues documented by our firm include a) the distortions created by ill-conceived incentives b) the distortions in decision making caused by prioritizing energy efficiency over renewable energy, as well as, c) the way many programs incentivize counter-productive financial decisions, whereas d) under a 30 year Capital Asset Pricing, the attractiveness of renewable energy would move to the top of the list. For your ready reference, I have highlighted key issues and proposed fixes as Enclosure I to this letter with references to the relevant DaBx commentaries and documents. Commending the above to your attention. Rogier F. van Vlissingen

-4-

Encls. DaBx Renewable Energy Retrofit Portfolio Standard for Multifamily Buildings. c.c.: NYS - Governor Andrew Cuomo NYC - Mayor Michael Bloomberg EPA - Gina McCarthy, Administrator DOE - Dr. Ernest Moniz, Secretary of Energy New York Times - Jill Abramson, Executive Editor Bloomberg Business News - Matthew Winkler, Editor In Chief The Wall Street Journal Gerard Baker, Managing Editor Fannie Mae Timothy J. Mayopoulis, President and CEO Freddie Mac - Donald H. Layton, CEO

-5-

Enclosure I Open Letter to President Obama

Proposed Building Code and Energy Policy Revisions to Reduce GHG Emissions and Enhance Real Estate Values Highlights from DaBx Demand Side Solutions Commentary & Publications 1. Programs that prioritize energy efficiency as a proxy for reducing of GHG-emissions fail, because they will marginalize renewable energy in favor of efficiency improvements of existing carbon-based infrastructure. Thereby, they effectively crowd out investment in renewables that would, in many cases, create greater enhancements to property values than available through carbon-based energy efficiency. Improving energy efficiency is not a goal in its own right, as it merely lowers the cost and increases demand for energy. Example: http://www.vliscony.com/2013/06/10/energy-efficiency-sinksgreen-underwriting/ 2. Incentives directed at energy efficiency without regard to the prior (make or buy) decision regarding carbon-based energy versus renewable energy, will always work out as a subsidy to carbon-based energy due to sunk costs. Example: http://www.vliscony.com/2013/06/01/nyserda-mpp-dimishingreturns/ 3. Incentives directed towards specific technologies will tend to destroy property values given, first, the inappropriate technology choices they foster in many cases, and, second, their tendency to encourage property owners to make capital decisions on energy infrastructure based on payback of the

-6-

equipment, instead of based on long term cash flow and increasing building values. Example: http://www.vliscony.com/2013/06/03/energy-retrofitsunderwriting-risk/ 4. When securitized, the performance of energy-efficiency loan portfolios has not been an unqualified success, because the valuations are dubious. Net zero construction has been the fastest growing segment of the construction market for 20 years. Therefore, the value of reducing your energy use 20-30% over last year diminishes as this new construction upgrades the overall stock of buildings. Energy-efficiency driven finance is merely the latest form of predatory lending offered by Wall Street to Main Street, hi-jacking property appreciation from its rightful owners. Example: Solar PPAs the current fad: http://www.vliscony.com/2013/05/30/ma-solar-ppa/ 5. The single most positive change to help bring about rapid reductions in building-level GHG-emissionshave the financial industry make mortgage lending for rehab/retrofits, including PACE bonds and similar vehicles, contingent upon 30-year cash flow projections for the property. The valuation extension would have the financial effect property by property of moving energy from liability side of the owners balance sheet to the asset side through renewable investment. Once 30year cash flow models become the norm, the marketplace will start to appreciate that 30 years of no energy bills beats 20-30% of energy savings. Moreover, emphasizing property values is the proper, capitalistic approach, in lieu of the 20 year top down plans which are now the norm. These plans reek of the toothless 20 year economic plans proffered in the former Soviet

-7-

Union to protect the status quo. Such plans subsidize the shareholders of energy companies at the expense of property owners and are generally designed to fail. Example: http://www.vliscony.com/2013/07/21/renewable-energy-policynew-york/ 6. Two simplifications go hand in hand here: 1) policy and regulations should focus on reducing GHG-emissions and 2) building owners should focus on investments that enhance long term property values. Together, these complementary priorities can eliminate vast amounts of red tape and unleash the economic forces that will drive the shift to a less carbon intensive economy. 7. The place to enforce the application of a proper 30 year cash flow model of the property is in the application process for financing and/or incentives. The model of current applications encourages financially counter-productive decision making, which benefits either energy companies (in the case or energy efficiency), or equipment manufacturers (ITC and other incentives), not the property owners, by emphasizing payback of specific equipment or efficiency measures. By shifting to a reporting of the long term improvement in property values, while qualifying for incentives based on reducing GHGemissions, the correct habits can be enforced seamlessly as part of the process.