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Carbon Trading

Permanent Link: http://ufdc.ufl.edu/UFE0021344/00001

Material Information

Title: Carbon Trading A Catalyst for Energy Efficient Residential Construction
Physical Description: 1 online resource (57 p.)
Language: english
Creator: Bass, Dustin Adam
Publisher: University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: 2007

Subjects

Subjects / Keywords: carbon, credits, energy, reductions, residential, trading
Building Construction -- Dissertations, Academic -- UF
Genre: Building Construction thesis, M.S.B.C.
bibliography   ( marcgt )
theses   ( marcgt )
government publication (state, provincial, terriorial, dependent)   ( marcgt )
born-digital   ( sobekcm )
Electronic Thesis or Dissertation

Notes

Abstract: There is a great need to reduce energy consumption in all sectors of the economy. Building construction consumes vast natural resources, and buildings account for 40% of global energy use. The pre-construction phase is the optimal time to implement energy efficient designs with minimal costs. A change agent is needed to make energy efficiency a primary objective in the building process. One possible change agent could be the upfront monetization of carbon reductions realized through energy-efficient designs. My study explored the potential value of carbon reductions and operational cost savings to homeowners in various home sizes in North Central Florida. Three reduction scenarios were tested against a baseline showing savings for the first 20 years of operation. Results indicate that savings realized during this period can account for more than 15% of construction costs. This amount is sufficient (depending on how it is leveraged) to affect enough to, depending on how it is leveraged; affect the desired change during the pre-construction phase.
General Note: In the series University of Florida Digital Collections.
General Note: Includes vita.
Bibliography: Includes bibliographical references.
Source of Description: Description based on online resource; title from PDF title page.
Source of Description: This bibliographic record is available under the Creative Commons CC0 public domain dedication. The University of Florida Libraries, as creator of this bibliographic record, has waived all rights to it worldwide under copyright law, including all related and neighboring rights, to the extent allowed by law.
Statement of Responsibility: by Dustin Adam Bass.
Thesis: Thesis (M.S.B.C.)--University of Florida, 2007.
Local: Adviser: Kibert, Charles J.
Local: Co-adviser: Issa, R. Raymond.
Electronic Access: RESTRICTED TO UF STUDENTS, STAFF, FACULTY, AND ON-CAMPUS USE UNTIL 2008-08-31

Record Information

Source Institution: UFRGP
Rights Management: Applicable rights reserved.
Classification: lcc - LD1780 2007
System ID: UFE0021344:00001

Permanent Link: http://ufdc.ufl.edu/UFE0021344/00001

Material Information

Title: Carbon Trading A Catalyst for Energy Efficient Residential Construction
Physical Description: 1 online resource (57 p.)
Language: english
Creator: Bass, Dustin Adam
Publisher: University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: 2007

Subjects

Subjects / Keywords: carbon, credits, energy, reductions, residential, trading
Building Construction -- Dissertations, Academic -- UF
Genre: Building Construction thesis, M.S.B.C.
bibliography   ( marcgt )
theses   ( marcgt )
government publication (state, provincial, terriorial, dependent)   ( marcgt )
born-digital   ( sobekcm )
Electronic Thesis or Dissertation

Notes

Abstract: There is a great need to reduce energy consumption in all sectors of the economy. Building construction consumes vast natural resources, and buildings account for 40% of global energy use. The pre-construction phase is the optimal time to implement energy efficient designs with minimal costs. A change agent is needed to make energy efficiency a primary objective in the building process. One possible change agent could be the upfront monetization of carbon reductions realized through energy-efficient designs. My study explored the potential value of carbon reductions and operational cost savings to homeowners in various home sizes in North Central Florida. Three reduction scenarios were tested against a baseline showing savings for the first 20 years of operation. Results indicate that savings realized during this period can account for more than 15% of construction costs. This amount is sufficient (depending on how it is leveraged) to affect enough to, depending on how it is leveraged; affect the desired change during the pre-construction phase.
General Note: In the series University of Florida Digital Collections.
General Note: Includes vita.
Bibliography: Includes bibliographical references.
Source of Description: Description based on online resource; title from PDF title page.
Source of Description: This bibliographic record is available under the Creative Commons CC0 public domain dedication. The University of Florida Libraries, as creator of this bibliographic record, has waived all rights to it worldwide under copyright law, including all related and neighboring rights, to the extent allowed by law.
Statement of Responsibility: by Dustin Adam Bass.
Thesis: Thesis (M.S.B.C.)--University of Florida, 2007.
Local: Adviser: Kibert, Charles J.
Local: Co-adviser: Issa, R. Raymond.
Electronic Access: RESTRICTED TO UF STUDENTS, STAFF, FACULTY, AND ON-CAMPUS USE UNTIL 2008-08-31

Record Information

Source Institution: UFRGP
Rights Management: Applicable rights reserved.
Classification: lcc - LD1780 2007
System ID: UFE0021344:00001


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1 CARBON TRADING: A CATALYST FOR ENERGY EFFICIENT RESIDENTIAL CONSTRUCTION By DUSTIN ADAM BASS A THESIS PRESENTED TO THE GRADUATE SCHOOL OF THE UNIVERSITY OF FLOR IDA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE IN BUILDING CONSTRUCTION UNIVERSITY OF FLORIDA 2007

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2 2007 Dustin Adam Bass

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3 This thesis is dedicated to the individuals w ho have supported and believed in me through the years. I would especially like to dedicate this thesis to my beautiful wife Nancy whose support and prayers gave me the encouragement needed to succeed. In addition, I would like to dedicate this thesis to my parents Ernest and Teresa Ba ss. None of my accomplis hments would have been possible without their love and support.

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4 ACKNOWLEDGMENTS I would like to thank my Lord and Savior Jesus Christ for giving me the strength and determination needed to complete my schooling. I would also like to thank my wife Nancy for supporting and believing in me along the way. In addition I would like to thank my supervisory committee for all of their assistan ce. In particular I would like to thank Mark van Soestbergen for all of the guidance and insight provided.

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5 TABLE OF CONTENTS page ACKNOWLEDGMENTS...............................................................................................................4 LIST OF FIGURES................................................................................................................ .........7 LIST OF TABLES................................................................................................................. ..........8 LIST OF ABBREVIATIONS..........................................................................................................9 ABSTRACT....................................................................................................................... ............10 CHAPTER 1 INTRODUCTION..................................................................................................................11 Brief Look at Carbon Emission Credits..................................................................................11 Study Overview................................................................................................................. .....12 Scope.......................................................................................................................... .....12 Gainesville, Florida.........................................................................................................12 Statement of Problem........................................................................................................... ..12 Purpose of Study............................................................................................................... ......14 Hypotheses..................................................................................................................... .........14 Significance of the Study...................................................................................................... ..14 Assumptions and Limitations.................................................................................................15 2 LITERATURE REVIEW.......................................................................................................17 Introduction................................................................................................................... ..........17 United States Sulfur Dioxide Program...................................................................................17 United States Western Water Market.....................................................................................19 The EU Emission Trading Scheme.........................................................................................19 The EU ETS Design........................................................................................................20 The EU ETS Allocation...................................................................................................20 Enforcement and Compliance.........................................................................................21 Consequences..................................................................................................................22 Conclusions.................................................................................................................... .........22 3 RESEARCH METHODOLOGY...........................................................................................24 Overview....................................................................................................................... ..........24 Sample Selection............................................................................................................... .....25 Establishing a Data Set........................................................................................................ ...25 Creating a Baseline............................................................................................................ .....25 Summary........................................................................................................................ .........27

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6 4 RESULTS AND DATA ANALYSIS....................................................................................28 Hypotheses..................................................................................................................... .........28 Hypothesis 2................................................................................................................... .31 Analysis....................................................................................................................... ...........32 Proposed Legislation.......................................................................................................32 Emission Re ductions.......................................................................................................33 Carbon Financial Instrument Framework........................................................................34 Beneficiaries.................................................................................................................. ..35 Market Participants..........................................................................................................36 5 CONCLUSION..................................................................................................................... ..53 LIST OF REFERENCES............................................................................................................. ..55 BIOGRAPHICAL SKETCH.........................................................................................................57

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7 LIST OF FIGURES Figure page 4-1 Conditioned Square Footage Distributions..............................................................................38 4-2 Construction Values of Homes.............................................................................................. .38 4-3 KWH Consumption Value 100 Home s Located in Gainesville, FL......................................39 4-4 Energy Consumption in the 1000-1500 SF Category.............................................................40 4-5 Energy Consumption in the 1500-2000 SF Category.............................................................40 4-6 Energy Consumption in the 2000-2500 SF Category.............................................................41 4-7 Energy Consumption in the 2500-3000 SF Category.............................................................42 4-8 Electricity and Natural Gas Consumption for 100 Homes.....................................................43 4-9 2005 Water Consumption.................................................................................................... ...44 4-10 Energy Consumption Normalized to 1,000 SF.....................................................................45 4-11 Tons of Carbon Dioxide Normalized to 1,000 SF................................................................46 4-12 NPV of 30% Energy Savings 20 Year Period......................................................................47 4-13 NPV of 50% Energy Savings 20 Year Period......................................................................48 4-14 NPV of 70% Energy Savings 20 Year Period......................................................................49 4-15 Carbon Values for 2,000 SF Reference Home.....................................................................50 4-16 Relationships Between Developers, Fina ncial Institutions, and the Energy Sector.............51 4-17 Benefits for Homeow ners and Developers...........................................................................52 4-18 Benefits for Financial Inst itutions and the Energy Sector....................................................52

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8 LIST OF TABLES Table page 4-1 Breakdown of Homes According to Year Constructed..........................................................37 4-2 Breakdown of Homes According to Conditioned Area (SF).................................................37 4-3 Categorized Construction Costs............................................................................................ .37 4-4 Energy Consumption........................................................................................................ ......39 4-5 Energy Consumption Normalized to 1,000 SF.......................................................................44 4-6 KG CO2 Normalized to 1,000 SF...........................................................................................45 4-7 tCO2 per 1,000 SF Gainesville, FL.........................................................................................45

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9 LIST OF ABBREVIATIONS SO2 Sulfur dioxide GHG Greenhouse gas. Green house gases in clude water vapor, methane, carbon dioxide, ozone, and nitrous oxide. CO2 Carbon dioxide EPA Environmental Protection Agency. The EPA is an agency within the United States federal government that has the re sponsibility of protecting human health and the natural environment. EU European Union. The European Un ion is union comprised of 27 nations, established in 1993. EU ETS European Union Emission Trading Scheme. The EU ETS is the largest greenhouse gas-trading scheme in existen ce. The EU ETS makes up an important part of the European Unions climate policy. GRU Gainesville Regional Utilities. GRU is the local energy supplier for the city of Gainesville, FL SF Square foot NPV Net present value. The net present value is a standard method used for appraising long-term projects. PSF Per square foot Kwh Kilowatt hour. Kwh is a unit of energy. The Kwh is commonly used for residential metering of electricity consumption. KGal Kilo gallon. Unit used to quantify water consumption. tCO2 Ton carbon dioxide Therm Energy unit of natura l gas equal to 100,000 BTU. BTU British thermal unit. A BTU is the amount of heat required to raise 1 pound of water 1 degree Fahrenheit. PSC Public service commission LCCA Life cycle cost analysis

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10 Abstract of Thesis Presen ted to the Graduate School of the University of Florida in Partial Fulfillment of the Requirements for the Degree of Master of Science in Bu ilding Construction CARBON CREDITS: A CATALYST FOR ENERGY EFFICIENT RESIDENTIAL CONSTRUCTION By Dustin Adam Bass August 2007 Chair: Charles Kibert Cochair: Raymond Issa Major: Building Construction There is a great need to reduce energy c onsumption in all sectors of the economy. Building construction consumes va st natural resources, and buildi ngs account for 40% of global energy use. The pre-construction phase is th e optimal time to implement energy efficient designs with minimal costs. A change agent is needed to make energy efficiency a primary objective in the building process. One possible change agent c ould be the upfront monetization of carbon reductions realized throug h energy-efficient designs. My study explored the potential value of carbon reductions and operational cost savi ngs to homeowners in various home sizes in North Central Florida. Three reduction scenarios were tested agains t a baseline showing savings for the first 20 years of operation. Results indicate that savings realized during this peri od can account for more than 15% of construction costs. This amount is sufficient (depending on how it is leveraged) to affect enough to, depending on how it is leverage d; affect the desired change during the preconstruction phase.

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11 CHAPTER 1 INTRODUCTION Brief Look at Carbon Emission Credits Carbon emission credits could be a m eans on which green building design and sustainability practices can rely to achieve industry wide success. Carbon financial instruments can facilitate the upfront capit alization of high efficiency co mponents needed to achieve low energy designs. In addition, carbon emission credits in the building sector have the potential to lower utility costs and considerably reduce ener gy loads on power generati on facilities here in the United States ultimately reducing th e harmful affects of greenhouse gases. The value of carbon emissions reduction credit s is derived from green house gas emissions thought to be culprit in global climate change. Most of the carbon emissi ons released into the atmosphere are generated by the consumption of fossil fuels in industrial, residential, and commercial processes. In the United States 34 % of the carbon dioxide emissions come from power stations that deliver our electrical needs. In order to reduce greenhouse emissions several national and international schemes have been developed to drive these emissions down. Of the various schemes, the Kyoto Prot ocol is the best known and the most comprehensive. The Kyoto Protocol is an agreement among 169 nations in which around 30 industrialized economies aim to reduce green hou se gas emissions by approximately 30 percent by the year 2012. Most of these redu ctions are expected to come fr om industrial sector. The cap imposed by the Kyoto Protocol was the necessary tr igger that enabled a viable emissions trading market to be established. Domestically the United States does not have a national policy in place to trigger a market for greenhouse emissions. However, th ere are nine bills before the 110th United States Congress that address greenhouse gas emission limits which could possibly be in effect by the year 2008.

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12 A catalyst such as the aforementioned legislatio n is needed to create a viable market, in particular, one that is created by supply and demand and allows for the building sector to play a role. Study Overview This thesis is an analysis of the rela tionships between energy consumption, carbon emission consumption, and their inherent relations hips in a carbon-trading scheme. To analyze the relationships that exist, a baseline was crea ted to determine the average energy consumption of a typical newly constructed house in Gainesville, FL. The baseline quantifies energy consumption, carbon consumption, and the values normalized to 1,000 SF. By quantifying the values and normalizing them to 1,000 SF a value can be established which can be used to determine marketable carbon values fo r any size home in any locale. Scope The City of Gainesville, Florida was used as th e base locale for this study because the local builders abide by the Florida Building Code and the construction processes are similar in nature. One hundred homes were selected at random base d upon size and age. In addition all of the homes analyzed in this study all share a common energy source. Gainesville, Florida Gainesville, FL is located in Alachua County, which is in North Central Florida. The population of Gainesville in 2005 was 100,000 citizen s. Gainesville also contains about 40,000 housing units. Statement of Problem The main objective for studying carbon em ission reductions is to reduce carbon emissions and reduce energy consumptions. The problem facing the environment is the harmful release of greenhouse gases into th e atmosphere, which is the prim ary cause of global warming.

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13 At the present time no domestic carbon emission sche me exists in the United States that focuses on diminishing CO2 levels. The ever-increasing levels of greenhouse ga ses are having and potentially will have a substantial impact upon the United States. Florida and Louisiana have already felt the affects of an ever rising sea level due in large part to the catastrophic storm surges that flooded vast portions of both states during the 2005 hurricane season. Both Florida and Louisiana can expect to see increasing impacts associated with global wa rming in the near future due to their relative proximity to sea level. Florida has 1,197 statute miles of coastline with 8,000,000+ citizens residing within the potentially affected areas associated with a substantial sea-level rise. The ever-increasing levels of greenhouse ga ses are having and potentially will have a substantial impact upon the United States. Florida and Louisiana have already felt the affects of an ever rising sea level due in large part to the catastrophic storm surges that flooded vast portions of both states during the 2005 hurricane season. Both Florida and Louisiana can expect to see increasing impacts associated with global wa rming in the near future due to their relative proximity to sea level. Florida has 1,197 statute miles of coastline with 8,000,000+ citizens residing within the potentially affected areas associated with a substantial sea-level rise. One of the most important issues in regard to decreasing residen tial energy consumption thus reducing the CO2 consumption is the relationship betw een residential developers, financial institutions, and energy producers. Energy needs for residential households constitutes a large portion of CO2 consumption, which affects the power generators carbon emission consumption levels. Therefore, a reduction by developers and homeowners can cons iderably decrease the energy sectors emissions.

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14 Purpose of Study The purpose of this research is to devel op a carbon emission-trading scheme, which ultimately will lead to a reduction in energy c onsumption and carbon emissions in Florida thus minimizing the impact on the environment. The goa l of the research is to enable interested parties to participate in an environmental tr ading mechanism, which will produce environmental and personal benefits. Hypotheses H1 : A baseline formulated from 100 recently constructed homes in Gainesville, Florida will present a quantifiable am ount of carbon emissions against which any reduction can be levied or traded in a carbon financial instrument. H2: What are the monetary and carbon savings associated with en ergy reductions of 30%, 50%, and 70%? Significance of the Study Typically, international, federa l, and local governments that ma y not always ensure an allencompassing solution to the environmental concer ns at hand make environmental regulations concerning pollutants. As mentioned above, the Kyoto Protocol is the most well known piece of legislation requiring stricter limits on emissions, wh ich will be tightened in the future. No such legislation is in place domesti cally therefore nothing has provided a catalyst for establishing a carbon trading mechanism. However, there are ni ne bills before the US Congress waiting for approval, which could ultimately provide param ount traction needed to establish a Cap and Trade carbon financial scheme do mestically. This significance of this study derives from the determination of marketable CO2 options for residential structures in Gainesville, FL. However, the resulting baseline of this study and its methodology could also be used as a basis for quantifying carbon emission quantities and values for different locations, vari ous size homes, or even varying levels of efficiency.

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15 From a broader perspective, th is research contributes to current environmental and high performance building research in quantifying the benefits of energy and carbon reduction, which would help promote high performance buildings In conclusion, establishing a baseline for quantifying CO2 emissions will help vested parties such as developers, builders, homeowners, and energy producers establish a vi able carbon trading mechanism. The baseline developed in this research may potentially help the e nvironment by reducing carbon emissions and energy consumption. Assumptions and Limitations This study focuses on energy and carbon consump tions in recently constructed residences, where reducing energy consumption can generate significant savings. Homes come in various styles and sizes. In order to limit substantial differences this study conc entrates on the following parameters: Conditioned area (1,000-3,000 SF) Age (2000-2004) Construction cost (appraised) This study is limited to CO2. The following assumptions were adap ted while creating the baseline. The energy data assumes that all homes consum e electricity, natura l gas, and water. Calculation methods for consumption values will be provided as well. All home consumption values are normalized to 1,000 SF. The energy consumption values are normalized to Kwh for ease of understanding. Proper conversions will be explained as well. This study will assume that a 30% energy re duction will result from a $5,000 investment into energy efficient items within the reference home.

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16 This study will assume that a 50% energy re duction will result from a $10,000 investment into energy efficient items within the reference home. This study will assume that a 70% energy re duction will result form a $15,000 investment into energy efficient items within the reference home. Kwh, Therms, and KGal will quantify all carbon qua ntities for electricity, natural gas, and water respectively. A reference house for the purpose of showing savings and energy reductions will be a 2,000 SF residence. Energy and CO2 savings are assumed to be 30%, 50%, and 70%. A reference development containing 600 units for the purpose of showing benefits associated with trading carbon credits will be assumed. The homes in the reference development will be 2,000 SF.

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17 CHAPTER 2 LITERATURE REVIEW Introduction Historical and present day literatures were examined regarding carbon and other environmental trading mechanisms. Trading mech anisms cited were environmental in nature, and in theory they can be applied to other sect ors. Markets both domestically and abroad have been utilized to minimize environmental damage. In the United States alone market mechanisms have been established to address urban land deve lopment, ozone depleting chemicals, nitrogen oxide, and sulfur emissions. Most of the mechanisms researched were Cap and Trade in nature. A Cap and Trade program involves issuing a quantity of homogenous permits equal to the total level of emissions the protocol allows. The EU ETS, SO2 program and western water markets are all Cap and Trade in na ture which are further explained in the subsequent sections. Individuals are free to buy and sell permits subject to whatever bookkeeping requirements are needed for assuri ng compliance. The commodity traded is the opportunity to emit a unit of pollutant once. This approa ch, which is already used to regulate US utilities Sulfur Dioxide (SO2) emissions, provides maximum flexibility and liquidity in the permit market (Fischer et al. 3, 1998). United States Sulfur Dioxide Program When most people in the United States think about emissions and emission trading the first thing that comes to mind is the SO2 program of the late 1900s. The Clean Air Act Amendments of 1990 were a domestic catalyst for innovative new ideas concerning the environment. The Clean Air Act came out of a highly volatile en vironmental and political situation. In the Northeastern United States and Canada, acid rain had made a huge impact upon recreational interests, taxpayers, electricity producers, a nd many others. The Clean Air Act amendments created a sulfur allowance trading program for electric producers which relied upon the allocation of allowances which regulate how much an entity is allowed to emit. Based on that premise the allocations are transferable acro ss firms and locations. Tradable allowances

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18 became a cornerstone of national efforts to control SO2 emissions, with an overall goal of reducing annual SO2 emissions by ten million tons from ba seline 1980 levels, reductions to be accomplished by the year 2010 (Colby, 2000). The c oncept was a great idea in theory, however at first the program struggled to take a hold. The Environmental Protection Agency (EPA) was charged with the responsibility of overseeing the trading of SO2 and utilities were required to submit compliance plans to the EPA. What th e EPA did not account for was the plan by some utilities to upgrade scrubbers to minimize pollutants and the e xpanded utilization of low sulfur coal. Thus, mass participation in the SO2 trading program did not take off as expected. A study by Hahn and May (1994) concluded that only 2.7% of total allowances changed hands in the first phase of allowance trading. Of th is percentage the vast majority were over the counter trades conducted between firms and not between third pa rty investors and the utility industry, as expected. Another unforeseen problem was the di fficulty that arose when parties attempted to trade allowances between states. Ambiguities betw een states imposed costs that were unforeseen when trading between different states and between different firms. Most states had not prepared policy measures regarding the trading of SO2 between states which limited trading in many circumstances. Trading was limited due to some f actors that were not take n into account. Most of the utilities and pollutants chose to upgrade th eir infrastructure rath er than trade sulfur dioxide. In the mid 1990s trad ing started to flourish. Trades occurred across the borders of all 24 stat es containing Phase 1 a ffected units. State public utility commissions bega n developing policies on regula tory treatment of allowance transfers, with fifteen states having writ ten policies in early 1996up from zero in 1992 (Colby 642, 1996). Reduced costs of desulphurization and falli ng low sulfur coal costs led to the vast reduction if the marginal cost of abatement. Some experts estimated that cost savings approached $1 billion per year as compared to command and control regulatory alternatives.

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19 Twenty years after the SO2 program was instituted the program has proved to be a success. In addition other such programs use the SO2 program in the United States as a springboard for other environmental trading mechanisms. Nevert heless, the results and the successes of the SO2 program did not come without a pric e. It took years and a lot of confrontation for the program to succeed. United States Western Water Market Another environmental market that preceded the SO2 program was the trading of water rights in the western United States. One quality of th e water market, which separated it from the SO2 market, was that state law and not federal regulat ion capped it. The wate r markets in the West have flourished in some areas but not on the scale like that of the Sulfur Dioxide (SO2) market. After the Reagan and Carter ad ministration ceased federal support for water development, those who needed water were forced to embrace markets for finite water rights. The problem that has faced the western water market is found predominan tly in the transaction process. There was a lack of an equitable exchange mechanism, thus stifling the exchange of water permits and rights. While there have been some ha rd-fought breakthroughs to facilitate trades, in general there are few transactions in regions where the gain s from trade are substantial. Prior to the 1990s, a large portion of the blame rested with state and federal policie s that either posed explicit barriers to transfers or were ambiguous and so imposed high transaction costs. Policymakers were reluctant to embrace a market approach. (Colby 644, 2000) The lack of policy had rendered it almost in effective as a viable trading market. Most western states now have clear procedur es governing water tr ansfers that require careful evaluation of proposed chan ges in water use (Colby 644, 2000). The EU Emission Trading Scheme In the years after the Kyoto Pr otocol was agreed to the Euro pean Union sought to establish a Carbon Dioxide emissions trading market. Th e European Unions Emission Trading Directive involved only those that were signatory to the Kyoto Protocol The EU directive raises

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20 explicitly the possibility that it can be linked to other national domestic GHG trading schemes. The directive makes it clear, however, that the EU ETS will only link with parties that have ratified the Kyoto Protocol. C ountries that link with the EU ETS will have their allowances recognized in the EU system on the basis of a bilateral agreement betw een the European Union and that country (Kruger and Pizer, 2004). The EU ETS Design The EU ETS is similar to other emissions trading schemes in that it takes after the successful SO2 program that arose out of the Clean Air Act Amendments of 1990 in the United States. The design of the EU ETS builds upon the experience of earli er emissions trading programs, but the scope and complexity of the progr am is far greater than past efforts (Kruger and Pizer, 2004). Whereas the Unites States SO2 program covered only one pollutant, the EU ETS seeks to cover more emissions across numerous industrial sectors. The EU ETS has looked into the possibility to implementing more enco mpassing carbon emissions in the second phase to the program that is likely to include offset provisions and cap and trade provisions. One important factor in the ETS scheme is that its compliance jurisdictions are more decentralized than the SO2 program in the United States. The EU ETS Allocation In the EU ETS, each member state submits a national allocation plan to the EU commission for approval. The reason member states had to submit a plan was to ensure that the Kyoto Protocols targets for em ission reduction were being met. In addition, the allocation process was to take into account: Emission proportions in the capped sect or compared to total emissions Projected and actual emissions Policy impacts on emissions Technical potential of activities to reduce emissions within the sector

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21 Member States were also asked to describe an approach in their plans for providing access to allowances for new entrants into the system. Another feature of the allocation plan was its incorporation of public participati on. All of the participatory countries have a specific national target that coincides with the Kyoto Protocol compliance that has been negotiated under the European Unions burden sharing agreement. Member States must decide upon which sector s to impose the economic burden via reduced allowance allocations. Kruger and Pizer point out that the targets in the SO2 program were set before the allocation process even took place. Th e allocation process for the EU ETS is sure to be the most difficult and controversial part of the scheme. Politics and policy was only a small portion of the problems that were faced during th e infancy of the allocation process. Because baselines needed to establish allocation quotas were inaccurate or nonexistent, many member states required third party veri fication. Another issue that aros e was whether to auction off or freely distribute the allocation. U ltimately, however, the vast major ity of allowances in the EU ETS will be allocated at no cost as they we re in US Programs (Kruger and Pizer, 2004). Enforcement and Compliance The EU ETS ultimately has to deal with a co mplex network of member states in which enforcement and compliance are a major issue. Compliance and enforcement provisions give emissions trading programs environmental integrity and provide the incentive for an e fficient outcome. These provisions include (1) accurate and complete emissions monitoring and reporting; (2) tracking of tradable permits with an electronic registry; (3) automatic pe nalties for excess emissions; (4) a credible threat of enforcement action if provisions of the compliance regime are violated; and (5) public access to emissions and trading data (U.S. EPA, 2003). The EU ETS and the U.S. SO2 program also differ in the wa ys that they are monitored. The U.S. SO2 program has very specific requirements th at must be met whereas the EU ETS has some flexibility built in to the monitoring of emissions. The EUs emissions monitoring program will vary for the US SO2 program in va rious ways. The EUs monitoring system will

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22 allow more flexibility with regard s to developing monitoring systems. This is due in part to the scope of which the EU ETS encompasses. The U.S. SO2 program only had to focus on SO2 emissions primarily from a single sector, wherea s the EU ETS covers emissions across a large number of sectors and source point s. Verification by member states is a departure from that of the SO2 program whereby the EPA controlled the emissions data. Consequences The penalties associated with polluting beyond the allowable limit activates the enforcement mechanisms, which the EU ETS an d other schemes rely on. Polluting beyond the allowable limit activates enforcement mechanisms which the EU ETS and other schemes rely on for compliance. The penalties, if high enough, will cause involved parties to trade. In the EU ETS the penalty is a uniform sum per ton of ex cess emission. The Directive also requires the publication of the names of ope rators who are not in complia nce (Kruger and Pizer, 2004). Civil and criminal penalties that may arise from non-compliance in the EU ETS will be handled by each Member State in their own way. The EU ETS is now binding law, and Member States are required to transpose it into national law and to abide by its mandatory provisions. Member state are required to implement and abode by th e provisions, failure to do so will ultimately result in proceedings before the European Court of Justice. Ultimately, the ECJ has the authority to impose fines on Member States if its rulings are not followed. However, this is considered a last resort that is only taken if a number of other lega l steps fail to induce compliance (Borchardt, 1999). Conclusions The aforementioned schemes have all succeeded ; however, they all have taken different paths. The U.S. SO2 program set the bar for trading mechanisms involving environmental commodities. The SO2 program is the basis from which a lot of the present day mechanisms are

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23 derived. The environmental concerns of the past few decades have forced the mechanisms to be implemented hurriedly and sometimes imperfec tly because of a large learning curve and constraints imposed by time. The information re viewed offers only a glimpse into the numerous trading mechanisms in existence. However, th ey are robust examples on how market mechanism can achieve desired environmental objectives.

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24 CHAPTER 3 RESEARCH METHODOLOGY Overview The objective of this thesis was to compile and analyze relevant data needed to support the underlying intent of creating a viable domestic ca rbon trading mechanism. In order to create a viable domestic trading mechanism a baseline ha d to be established from which the mechanism would be based. All of the data that was collected was data that is obtainable by the general public. The following sequence of events took pl ace to assure a thor ough analysis of carbon trading mechanisms and their subsequent fram eworks were thoroughly analyzed in order to provide the most thorough information available: An in-depth literature review was performed to extract as much pertinent information about existing environmental trading mechanis ms and their subsequent frameworks. The literature review performed focused specifically on trading mechanisms. A sample population was conceptualized which this thesis would re ly upon to generate unbiased information. The sample population for this thesis was based upon the North Central Florida Region with particular emphasis being focused on Gainesville, FL. Necessary data criteria was established which would substantiate the ultimate goal of this thesis. The data that was nece ssary for this thesis was heated square footage, age of house, electricity consumption, natural gas consumpti on, water consumption, and raw building value. Data was obtained through Gainesville Regional Utilities, Alachua County Public Records, and other sources. An unbiased baseline was establ ished based upon the above criteria, which would be the benchmark from which the thesis would be based. Potential energy and fiscal savings were forecast in order to substa ntiate a portion of this thesis.

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25 Sample Selection Once the data requirements were determined, the focus shifted to extracting the information from the Alachua County Property A ppraisers website for 100 randomly selected homes that fell between 1,000-3,000 square feet. The relevant construction time period (20002004) that would be necessary to establish an up to date baseline was selected. After the data was extracted from the Alachua County Property Appraisers database the energy consumption for the 100 randomly targeted residences was obtai ned from GRU. A spreadsheet was set up in order to keep track of the extracted data. The energy data for the baseline was obtained from the 2005 GRU energy consumption database that was purch ased for the sole intent of extracting data for my thesis. The addresses of the targeted references were cross-referenced in the GRU database to determine a premise number for each individual residence. Once each residence was paired with its appropriate premise number the per tinent data was then extracted. The residences were analyzed to determine electricity, natu ral gas, and water consumption for 2005 (Billing Year). Establishing a Data Set After the literature review was complete data needed to establish a baseline for the proposed carbon trading mechanism was collected. The data elements determined as important in order to establish the baseline for this study was selected and they included: age of construction, square feet of conditioned space, water consumption, electricity consumption, and natural gas consumption. The extracted data was set up in MS Excel spreadsheets in order to categorize and analyze the data. Creating a Baseline From the Alachua County Property appraisers website public records were analyzed which established the baseline for this thesis. Unbiased addresses were selected based upon square

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26 footage and age of construction. The properties then were entered into an excel spreadsheet. Once the sample population was filled the addresse s were cross-referenced to determine the properties premise number. The premise number of each residence was needed to determine the consumption of electricity, natural gas, and wa ter for the calendar year 2005. Carbon dioxide coefficients for electricity, natura l gas, and water were paired w ith the total consumption values for the respective categories. The energy units for the energy data collected from GRU were Kwh, Therms, and KGal. In order to compare equal units the Therms for natural gas were converted to Kwh. One Therm = 29.31 Kwh. The coe fficients used to calculate the weight of CO2 for electricity, natural gas and water consumption were: .926 kgCO2/Kwh, 5.4 kgCO2/Therm, and .73 kgCO2/KGAL respectively. Total emission weights were calculated from the subsequent data. The totaled consumptive va lues were then normalized to 1000 square feet in order to establish a uniform quantity. In add ition to the above mentioned processes, the total raw costs for electricity, natural gas, and wa ter were established based upon 2007 GRU energy costs. Total annual costs per thousand square feet were quantified. A 2,000 SF reference home was established for ease of showing savings over a twenty-year peri od. An LCCA for the reference home was conducted in order to calculate the realized savings asso ciated with the three reduction amounts. An LCCA of the carbon values was conducted as well to see what the values would be over a twenty-year span. In addition, a carbon trading mechanism outlining the beneficiaries and key participants is presented in the final chapter of this study. The mechanism establishes the relationships necessary for the successful trading of carbon em ission credits between financial institutions, developers, homeowners, and the en ergy sector. In order to show the relationships between the privy parties a prototype development consisting of 600 homes will be presented to demonstrate the quantitative details inherent to the proposed carbon trading mechanism.

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27 Summary The conclusions of the data analysis can be found in the following chapters. The analysis in the following chapters is shown both nume rically and graphically to help convey the information in the most unbiased way possible. The analysis of the aforementioned information enabled the conclusions that follow to occur w ith regards to the establishment of a viable emission trading mechanism, which would benefit all privy parties.

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28 CHAPTER 4 RESULTS AND DATA ANALYSIS Hypotheses H1: A baseline formulated from 100 recently constructed homes in Gainesville, Florida will present a quantifiable am ount of carbon emissions against which any reduction can be levied or traded in a carbon financial instrument. To create a baseline a sample of 100 ho mes built between calendar year 2000-2004 in Gainesville, FL was established. Figure 4-1 sh ows the break down of the homes according the year in which they were constructed. The homes in Figure 4-1 are vital to the formulation of the baseline because they were all built using similar building practices; they ar e in the same climate zone, and have the same energy provider. The homes in this sample were all selected according to construction date that is reflective of recen t construction costs and bu ilding codes that will help normalize the data and more precisely qua ntify energy and carbon emissions. The average age of the homes in this sample was 5 years at the time of the analysis. To refine the data, only th e conditioned square footage was used and the sample was separated into 500 square foot incr emental categories. The four categories are listed in Figure 42. Figure 4-4 shows the square footage distribut ion of the 100 sample homes. The square footage range for this study was 1,000 SF 3,000 SF. Recorded construction costs in this data set are categorized in the same manner as the conditioned square footage. The average cons truction costs of the 100 homes are shown in Figure 4-3 and Figure 4-5. The new construction home values for this study range between $45,000 and $230,000. The recorded value of constr uction for the 100 homes in this study was $13,625,900.00. The construction values in this data pool do not reflect the net present value of the construction costs. The total, av erage, and per square foot (per ft.2) costs in this study are not

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29 quantified to current net present values (NPV), but reflect the constr uction costs as reported when the homes were built. The electricity (Kwh), natural gas (expressed in Kwh), and water (KGal) consumption is broken down in the same four 500 SF categories. Figure 4-6 shows the tota l annual consumption values for electricity, natural gas and water in each size category. The energy consumption for electricity and natural gas are bo th expressed in kilowatt-hours for ease of comparison. All of the consumption data in this study was taken fr om Gainesville Regional Utilities database and reflects 12 months of consumption from January to December 2005. Figure 4-7 shows the annual Kwh consumption le vels for natural gas and electricity for all of the homes in the sample population. The figure shows that consumption of electricity gradually increases along with the respective sq uare footage. In addition the natural gas consumption increases gradually with the size of the home. Figure 4-8 shows energy consumption in th e 1000-1500 SF category. For the purpose of displaying energy consumption, elec tricity and natural gas consum ptions are both expressed in Kwh units for ease of comparison. The aver age energy consumption for the 1000-1500 SF classification is 9486 Kwh of electricity, 2753 Kwh of natural gas, and 59 KGal of water. The linear relationship of the elec tricity consumption in the 10001500 SF category slightly declines as the size of the home increases. In addition, the natural gas consumption increases proportionally along with the size of the home. Figure 4-9 displays energy consumption in the 1500-2000 SF category. The average energy consumption for the 1500-2000 SF category is 12,187 Kwh of electricity, 7,743 Kwh of natural gas, and 136 KGal of water. The rela tionships between the electricity and natural gas

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30 consumption in the 1500-2000 SF category reflect the same trend associated with the 1000-1500 SF category. The larger the house is in th e 1000-1500 SF category the more efficient it is. Figure 4-10 displays the energy consumption in the 2000-2500 SF category for electricity and natural gas in Kwh. The average ener gy consumption for the 2000-2500 SF category is 14,947 Kwh of electricity, 10,023 Kwh of natural gas, and 149 KGal of water. The consumption values for the homes in the 2000-2500 SF category both increase along with the square footage of each home. The more area the more the home consumes. However, the larger homes consume less on average than their smaller counterparts. Figure 4-11 displays the energy consumpti on in the 2500-3000 SF category. The average energy consumption for the 2500-3000 SF category is 15,073 Kwh of electricity, 11,273 Kwh of natural gas, and 168 KGal of wate r. The trend line associated with Figure 4-7 reflects the increase in consumption associated with the increase in square footage. Figure 4-12 displays the total consumption for electricity and na tural gas for the 100 homes analyzed in this study. The annual Kwh consumption values associated with the 100 homes reflect the escalation in c onsumption as the square footag e increases. The electricity consumption increases at a slightly lowe r rate than that of the natural gas. Figure 4-13 displays the annual water consum ption for the 100 homes analyzed in this study. The annual water consumption is displaye d in KGal. The water consumption values associated with the 100 home sample populations demonstrate that the larger the home the more water that is used on an annual ba sis that is to be expected. Figure 4-14 shows the normalized energy cons umption values. The conversion factors mentioned in the methodology were utilized to c onvert natural gas consumption usage into Kwh in order to enable a comparison of similar consumption units. Figure 4-15 shows energy

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31 consumption for the four size categories, norma lized to 1000 SF. The consumption values in Figure 4-15 show that the homes in the 1500-2000 SF category are the least efficient homes in the sample population. The homes that fall be tween 2000-3000 SF are more efficient per square foot than the smaller homes in the sample population due possibly to better appliances and HVAC equipment. The carbon dioxide values for th e 100 homes in this study are computed by totaling the embodied carbon in the electricity, na tural gas, and water. The CO2 quantities for the four categories were normalized to 1,000 square feet to provide a uniform comparison. This approach standardizes the CO2 emissions rate across a range of di fferent size homes. Figure 4-16 shows the total CO2 and categorized CO2 totals for electricity, natural gas, and water normalized to 1,000 SF. The homes in the 1000-2000 SF categor y consume more carbon dioxide than the larger homes in the survey. The high rate of carbon dioxide consumption is attributed to the inefficiency of the homes. Figure 4-17 shows the tCO2 per 1,000 SF across the four size categories in the Gainesville, FL. The homes in the 1,000-1,500 SF and 1,500-2,000 SF categories consume more carbon dioxide than the homes in the larger categorie s. Therefore the smaller homes consume more carbon dioxide than the larger categories Figure 4-17 shows the tCO2 normalized to 1000 SF across the four size categories. The four home categories shown in Figure 4-18 sh ow a similar relationship to that of the consumption quantities associated with the four respective categories. Th e larger home size in the study reflects the diminished amount of marketable carbon dioxide. Hypothesis 2 H2: What are the monetary and carbon savings associated with energy reductions of 30%, 50%, and 70%?

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32 This hypothesis is based on a 30, 50, and 70% reduction in energy consumption in the residential building stock. Figures 4-18 to 220 show the projected 20 -year savings based on calendar year 2005 energy consumption usi ng May 2007 energy costs for three reduction categories, normalized to 1,000 SF. The three LCCA s show the net present values of the savings for the three respective energy reduction categor ies. The cumulative savings for the three categories are $10,561, $17,601, and $24, 642. Figure 421 shows the carbon reductions for the 2,000 SF reference home over a twenty-year period. In addition the projected value of the carbon has been quantified and input in order to determine the NPV of the carbon over a twentyyear period beginning in 2007. Analysis Proposed Legislation Currently there are nine proposals before the 110th Congress that address greenhouse gas and CO2 limits. Sen. Joseph Lieberman from Connectic ut has proposed bill S. 280 that is known as the Climate Stewardship and Innovation Act of 2007. The proposed bill seeks to cap emissions across various economic sectors such as transportation, industry, commercial, and electricity. Each sector will have a sector wide emissions cap that will be monitored by the EPA. This study would best relate to the energy sector Allowances would be equal to a maximum of 6.13 million metric tons of CO2 after 2011, reducing to 5.239 million metric tons after 2019, 4.1 million tons after 2029, and 2.096 after 2049 (Liebe rman 2007). Over the next 42 years the allowable emissions for CO2 would be reduced by 34%. This legislation could trigger the following carbon financial instrument, thus faci litating the exchange of carbon emission credits between the various sectors. The following fr amework in this study shows the viability and beneficiaries who could play a major role in reducing greenhouse gas emissions domestically.

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33 Emission Reductions This study concludes that a typical newly cons tructed home in Gainesville, Florida causes an average of 6.75 tCO2/1,000 square feet per ye ar. The marketable amount of carbon dioxide in this study frequently is re ferred to as carbon in this study, de pends on numerous factors. The marketable amount of carbon examined in this study ranges between 30-70%. At those levels, the typical house in Gainesville, FL c onsumes approximately 2.025 to 4.725 tCO2 per 1,000 square feet per year according to the baseline If we reintroduce a 2,000 SF home as a reference home for the purpose of this discussion, the twenty-year marketable volume of CO2 ranges from 80-188 ton. In addition, this study shows that there is significant energy a nd cost reduction available to the homeowner however this study focuses more on th e developer as the pivotal participant. The reference home consumes 12,934 Kwh of electricity and the equivalent of 8,470 Kwh in natural gas. These numbers show that there is sign ificant room for reductions if high performance building practices are integrated into the typi cal residence. A reduc tion of 30%-70% would result in reducing electricity consump tion by 3,880-8,676 Kwh and 2,542-5,929 Kwh in natural gas per year. The combined cost savings amount to between $640 and $1,495 per year. Though not quantified in this study, re duced energy consumption by energy efficient residences also means a reduction of demand on the grid. This ha s value to power producer s, especially during times of peak demand, as the residential sector consumes about 38% of th e electricity produced. In contrast, in 2004, power generation emi ssions totaled 5,908 million metric tons CO2 (EPA 2006). One of the challenges in the marketability of carbon is determining the value for a tCO2. FPL Group has recently unveiled their desired value of tCO2. Our research shows that a CO2 price beginning at $10/ton of CO2 and increasing by $2/ton each year would be both effective

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34 and manageable (FPL Group 2007). Other enti ties such as the Congressional Budget Office have also alluded to a $10/ton ba se price as well. This study is not conclusive as to what the optimal value of carbon is and at which point th e mechanism will be triggered or stalled. Carbon Financial Instrument Framework In order to demonstrate the framework for th is carbon financial instrument this study will refer to the reference development menti oned in the methodology. A 600-unit development consisting of 2,000 square feet residen ces would be able to market 81,000 tCO2 according to this studies baseline. The aforementioned amount is based on a 50% energy reduction over 20 years. Therefore, the developer in exchange for green loan products could transfer the quantified tCO2 via a contract to the financia l institution. The financial inst itution providing the green loan products would aggregate the sequ estered carbon emission credits and market them to the energy sector. Based on the aggregate amount of car bon emission credits and th e alluded $10/ton price the financial institution would possess $37,900 worth of carbon emission credits in year one. The retail value is based on FPL groups proposed price for a tCO2. With prices escalating as time passes the value of the carbon credits will increase. The value of the carbon credits for the 600-unit development could escalate to $1,203.000 in year 20 based on FPL Groups 20-year price projection. Figure 4-21 show s the projected net present valu es of the carbon credits over a twenty-year period. In order for the carbon tradi ng mechanism to work a few of the incentives might possibly need to be used in conjunction w ith one another. The carbon credit values on in twenty years for the 2,000 SF reference home will have a value of about $100.00 or so based on the NPV of a 50% energy reduction. That value alone is not enough incentive for developers to green a particular project. However, if attractiv e loan products and other incentives are offered it might be enough to trigger the mechanism into functioning. The energy sector will have the opportunity to purchase carbon emissi on credits from the financial institutions presuming they

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35 are needed in order to meet the caps imposed by legislation. With the prices that have been calculated in the LCCA the price point might be very attractive for the energy sector. Figure 422 shows the framework in graphical form. The framework shows developers, financial institutions, and the energy sector as the three participants. In order for the mechanism to take hold the tree participants will have to establish the market. However, in the future individual homeowners and builders might be ab le to play a pivotal role. In addition, the financial inst itutions in this framework could sequester carbon emission credits as a package from de velopers or on an individual basis from homeowners. By sequestering carbon emission credits form individual homeowners th e financial institutions could possibly parlay the scheme into redevelopmen t, renovations, and custom home scenarios. Beneficiaries The study identifies homeowners, developers, po wer companies, financ ial institutions and the environment as beneficiaries. Figure 4-23 and Figure 4-24 show the benefits to each participating sector of the proposed framework. Homeowners would benefit by a reduction in their energy bill. A reference homeowner has the potential to save approximately $21,370 over a twenty year s span based on 50% reduction. Developers will benefi t by receiving the funds necessary to introduce energy efficient design and components in the building process. In addition to monetary incentives, developers benefit from the enhanced marketability of th eir green developments. Power companies benefit by being able to lock in long-term carbon reductions at a fixed price. This reduces their exposure to market volatility of emissions reductions, whic h are slated to become scarce over time. Power companies also benefit from load reduction, fore stalling the need for new infrastructure, while alternative technologies have tim e to mature and become cost competitive. Numerous financial institutions are investing bill ions of dollars into energy e fficient financial programs, among

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36 which are Bank of America, Fannie Mae, and Ci tigroup. Financial institutions that focus financial products on energy effici ent residential and commercial r eal estate benefit by increased market share and the opportunity to act as a ggregators by collecting carbon reductions as an integral component of the mortgage created. In addition the reduced m onthly outlay on the part of the homeowner frees up additional capital for re payment of the loan. The environment is the ultimate beneficiary. With 11% of new home cons truction in the U.S. taking place in Florida, with over 200,000 units built in 2006 alone, millions of tons of greenhouse gases can be avoided annually if the situation can be arranged so the value of the en ergy reductions can be realized among beneficiaries. Market Participants For this market to be successful several component s need to be in place. First, some entity needs to be responsible for establishing, updatin g, and monitoring the baseline values. Second, an entity needs to be responsible for overseeing th e transactions between beneficiaries, such as a brokerage firm or clearinghouse. Third, some so rt of commissioning ag ency is necessary to guarantee that the new construction meets the contract requirements. Entities that come to mind who could be involved this new market are th e Florida Green Building Council or the United States Green Building Council or another third party on the commissioning side. The Public Service Commission (PSC) or designated academ ic institutions could be responsible for establishing and updating baselines. Possibly there may be a need for legislative action that guarantees the delivery of the em ission reductions to the financia l institution rega rdless of any changes in homeownership.

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37 Table 4-1. Breakdown of Homes A ccording to Year Constructed Year Built 2000 2001200220032004 # of Homes 13 15 12 31 29 % of Total Homes 13% 15% 12% 31% 29% Table 4-2. Breakdown of Homes A ccording to Conditioned Area (SF). Area of Homes 10001500 15002000 20002500 25003000 # of Homes 27 29 24 20 Average Area (SF) 1315 1792 2272 2718 % of Total Homes 27% 29% 24% 20% Table 4-3. Categorized Construction Costs. Size Category 1000-1500 1500-20002000-25002500-3000 Avg. Size 1315 1792 2272 2718 Avg. Construction Cost $81,470.37 $124,813.79 $158,575.00$200,040.00 Average Construction Cost (per SF) $61.95 $69.65 $69.80 $73.60

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38 0 500 1000 1500 2000 2500 3000 3500 020406080100120 Distribution of HomesSF Figure 4-1. Conditioned Square Footage Distributions. $0.00 $50,000.00 $100,000.00 $150,000.00 $200,000.00 $250,000.00 020406080100120 Distribution of HomesConstruction Cost Construction Values of 100 Homes Linear (Construction Values of 100 Homes) Figure 4-2. Construction Values of Homes.

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39 Table 4-4. Energy Consumption. Size Category 10001500 1500-2000 2000-2500 2500-3000 Total Electricity (Kwh) 256,134 352,421 358,716 301,461 Total Natural Gas (Kwh) 74,330 224,544 240,547 225,452 Total Water (Kgal) 1,593 3,933 3,578 3,363 Figure 4-3. KWH Consumption Value 100 Homes Located in Gainesville, FL. 0 10000 20000 30000 40000 50000 60000 70000 10801320 1448161519542123 189426422856 Area SFKwh Natural Gas Kwh Electricity Kwh

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40 0 5000 10000 15000 20000 25000 30000 100011001200130014001500 SFKwh Electricity Kwh Natural Gas Kwh Linear (Electricity Kwh) Linear (Natural Gas Kwh) Figure 4-4. Energy Consumption in the 1000-1500 SF Category. 0 5000 10000 15000 20000 25000 150016001700180019002000 SFConsumption Kwh Electricity Kwh Natural Gas Kwh Linear (Electricity Kwh) Linear (Natural Gas Kwh) Figure 4-5. Energy Consumption in the 1500-2000 SF Category.

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41 0 5000 10000 15000 20000 25000 30000 35000 40000 200021002200230024002500 SFKwh Electricity Kwh Natural Gas Kwh Linear (Electricity Kwh) Linear (Natural Gas Kwh) Figure 4-6. Energy Consumption in the 2000-2500 SF Category.

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42 0 5000 10000 15000 20000 25000 30000 250026002700280029003000 SFKwh Electricity Kwh Natural Gas Kwh Linear (Electricity Kwh) Linear (Natural Gas Kwh) Figure 4-7. Energy Consumption in the 2500-3000 SF Category.

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43 0 5000 10000 15000 20000 25000 30000 35000 40000 100015002000250030003500 Area SFConsum p tion Kwh Electricity Kwh Natural Gas Kwh Linear (Electricity Kwh) Linear (Natural Gas Kwh) Figure 4-8. Electricity and Natura l Gas Consumption for 100 Homes.

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44 0 100 200 300 400 500 600 700 100015002000250030003500 Area SFWater Consumption (KGal) Water KGal Linear (Water KGal) Figure 4-9. 2005 Water Consumption. Table 4-5. Energy Consumption Normalized to 1,000 SF. Size Category 1000-1500 1500-2000 2000-2500 2500-3000 Electricity Kwh 7,216 7,491 6,579 5,546 Natural Gas Kwh 2,885 5,995 4,411 4,148

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45 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 1000-15001500-20002000-25002500-3000 SF Natural Gas KWH Electricity KWH Figure 4-10. Energy Consumption Normalized to 1,000 SF. Table 4-6. KG CO2 Normalized to 1,000 SF. Size Category 1000-1500 1500-2000 2000-2500 2500-3000 Electricity 6,679 6,933 6,089 5,133 Natural Gas 386 877 813 765 Water 33 61 38 45 Kg Carbon Dioxide Total 7,097 7,871 6,940 5,943 Table 4-7. tCO2 per 1,000 SF Gainesville, FL. Size Category 1000-1500 1500-2000 2000-2500 2500-3000 Average tCO2/1,000 SF tCO2/1,000 SF 7.1 7.87 6.95 5.94 6.75

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46 0 1 2 3 4 5 6 7 8 1000-15001500-20002000-25002500-3000 SF Water tCO2 Natural Gas tCO2 Electricity tCO2 Figure 4-11. Tons of Carbon Dioxide Normalized to 1,000 SF.

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47 Figure 4-12. NPV of 30% Energy Savings 20 Year Period.

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48 Figure 4-13. NPV of 50% Energy Savings 20 Year Period.

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49 Figure 4-14. NPV of 70% Energy Savings 20 Year Period.

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50 Figure 4-15. Carbon Values for 2,000 SF Reference Home.

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51 Figure 4-16. Relationships Between Developers, Financial Institutions, and the Energy Sector.

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52 Benefits for Homeowners and DevelopersHomeowners Reduced operating costs associated with reduced energy consumption. Access to Energy Efficient Mortgages. Mortgage Point Reductions. Developers Access to special construction loan products offered for high performance construction. Increased Marketability. Figure 4-17. Benefits for Homeowners and Developers. Benefits for Financial Institutions and the Energy SectorFinancial Institutions Increased market share. Meeting in-house sustainability goals. Aggregating CO2and marketing the aggregated CO2to the energy sector. Energy Sector Access to carbon emission credits needed to offset excessive release greenhouse gases. Reduced peak energy demand and energy loads. Conformity to proposed caps placed upon the energy sector. Figure 4-18. Benefits for Financial Institutions and the Energy Sector.

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53 CHAPTER 5 CONCLUSION High performance green buildings should be bui lt with energy savings and reduced carbon consumption in mind. These reductions are the goals by which sustainability should focus in order to lessen the impact upon the environment. The benefits of the energy reductions are widely known although the quantity of potential savings has not been clear to a majority of the industry. This problem causes the involved parties to focus on limited reductions with out taking advantage of all of the possibilities available. This study develops a baseline and carbon fina ncial instrument that focuses not only on energy reduction but carbon credits arising fr om those reductions as well. This study demonstrates that a cost and carbon savings study by using LCCA can be used to project the benefits of energy and carbon reductions on the t ypical home in Gainesville, FL, which can be implemented in the domestic carbon financial instrument. This study uses data from the homes located in North Central Florida in order to establish the baseline. Future studies may consider focu sing on other regions of the country that have different climatic characteristics. Future re search should also focus on determining what the differences between energy efficien t homes and code built homes are. Future studies should also look into establishing the remaining greenhouse gas consumptions by th e typical residential structure. Carbon dioxide is the most well know n greenhouse gas but it is not the most damaging per unit weight. The significance of the presented methodology derives from the determination of the quantity of carbon consumed by the average home in Gainesville, FL. Another significant contribution of this research is introducing the residential sector into a trading mechanism that has always been thought to be between the energy sector and the regulatory commissions. This

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54 carbon financial instrument also c ontributes to the clar ification of the rele vant participants, which would eventually help promote high pe rformance building and reduce the release of greenhouse gases into the atmosphere.

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55 LIST OF REFERENCES Bailey, E. 1996. Allowance Tr ading Activity and State Regulat ory Rulings. Working Paper No. 96-002, MIT Center for Energy and Envi ronmental Policy Research. Cambridge, Mass. Borchardt, K., 2000. The ABC of Commun ity Law, European Commission, European Documentation Series, Brussels. Colby, B. G. 2000. Cap-and-Trade Policy Challenges: A Tale of Three Markets, Land Economics 76 (Nov.): 638-651. Fischer, C., K. Suzi, and M. Toman. 1998. Using Emissions Trading to Regulate U.S. Greenhouse Gas Emissions: An Overview of Policy Design and Implementation Issues, Discussion Paper 98-40, Resources for the Future, Washington, D.C. Hahn, R. W., and C.A. May. 1994. The Behavi or of the Allowance Market: Theory and Evidence. Electricity Journal 7 (Mar.): 28-37 Joskow, P. L. and R. Schmalansee. 1998. The Political Economy of Market Based Environmental Policy: The U.S. Rain Program Journal of Law and Economics 41:37-83. Kruger, J. and W.A. Pizer. 2004. The EU Em issions Trading Directive: Opportunities and Potential Pitfalls, Discussion Paper 04-24, Re sources for the Future, Washington, D.C. Lieberman, J., 2007. Bill S. 280, 110th Congress. 19 Jun. 2007 Smith, A. E., J. Platt, and A.D. Ellerma n. 1998. The Costs of Reducing Utility SO2 EmissionsNot as Low as You Might Thi nk. Working Paper No. 98-010, MIT Center for Energy and Environmental Policy Research. Cambridge, Mass. Tietenberg, T.H. 1980. Transferable Discharge Permits and the Control of Stationary Source Air Pollution: A Survey and Synthesis. Land Economics 56 (Nov.): 391-416 U.S. Census 2006. New Home Construc tion Data 2006 State Charts. 09 Jun. 2007 U.S. EPA, 2003a. Tools of the Trade: A Guid e to Designing and Operating a Cap-and-trade Program for Pollution Control, Office of Air and Radiation, EPA 430-B-03-002. U.S. EPA, 2007. Emissions & Generation Re source Integrated Database. Clean Energy, http://www.epa.gov/cleanrgy/egrid/index.htm

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56 U.S. General Accounting Office. 1994. Allowan ce Trading Offers an Opportunity to Reduce Emissions at Less Cost. Wash ington, D.C.: U.S. GAO RCED-95-30.

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57 BIOGRAPHICAL SKETCH Dustin Bass received his Bachel or of Arts in political scie nce from the University of Florida, Gainesville, Florida, in August 2000. Af ter graduation he worked for 5 years in various sectors. In 2005 he enrolled in the M.E. Ri nker, Sr. School of Building Construction at the University of Florida, Gainesville, Florida, to pursue a Master of Science in Building Construction with a concentr ation in sustainability. Dustin Bass was born in Tampa, FL. U pon graduation, he will move to Oxford, Mississippi to work as an estimator. He hopes to promote sustai nability throughout the Southeastern United States.