Costs and benefits of green buildings

A chart-filled excerpt from the terrific book, “Greening Our Built World: Costs, Benefits, and Strategies”

Recent surveys find that concern over first costs remains the primary barrier to green building. For example, Global Green Building Trends study, released in 2008, reports that of the over 700 construction professionals who responded to the survey, 80% cited “higher first costs” as an obstacle to green building.

Green buildings””designed to use fewer resources and to support the health of their inhabitants””are commonly viewed as more expensive to build than conventional buildings. For example, a 2007 opinion survey by the World Business Council for Sustainable Development found that, on average, green buildings were thought to cost 17% more than conventional buildings. But we found this widespread perception””that greening costs a lot more than conventional design””to be wrong. In fact, the green 170 buildings analyzed for Greening our Built World cost, on average, less than 2% more than conventional buildings; moreover, green buildings provide a wide range of benefits””both direct and indirect””that make them a very good investment.

The figure above derived from the WBCSD survey illustrates this perception and compares it to the actual green premiums. The public also appears to underestimate the environmental impacts of buildings: The same international survey showed a public perception that buildings produce roughly 20% of CO2 emissions, when in reality they account for about 45%. And, as noted in an earlier post, a recent survey of U.S. homeowners found that nearly three-quarters believe that their homes have no adverse environmental impacts.

That’s an excerpt from a fact- and chart-filled new book, “Greening Our Built World: costs, benefits and strategies” (Island Press) by my long-time friend and former DOE colleague Gregory Kats. Greg is director of climate change at Good Energies, a multi-billion dollar global clean energy investor, where he leads the firm’s investments in energy efficiency and green buildings. Greg is a founder of the American Council on Renewable Energy (ACORE). He is founding chair of the Energy and Atmosphere Technical Advisory Group for LEED, and was the principal advisor in developing Green Communities, the national green affordable housing design standard. Previously, Greg served as the director of financing for energy efficiency and renewable energy at the U.S. Department of Energy.

Over a 20-month period beginning in 2007, working with over 100 architects, developers, green building consultants, and building owners, we surveyed over 300 buildings and gathered detailed data on 170 green buildings, including the costs of going green; energy and water savings; and health, productivity, and other benefits. The 170 buildings for which the data sources (e.g., the architect or the developer) were able to provide information on the green premium — that is, the incremental cost of green building — make up the final data set used for cost-benefit modeling. To allow comparability of financial impacts over time, costs and benefits are expressed in terms of dollars per square foot ($/sf).

We looked at a wide range of building types, including schools, owner-occupied offices, offices built on spec, health care facilities, multifamily residential buildings, theaters, places of worship, college and university facilities, and laboratories. Because the buildings achieved LEED or equivalent certifications and a range of energy and water-use savings, we were able to evaluate the cost-effectiveness of different levels of performance and benefits. The data set includes buildings in 33 states and seven countries, completed between 1998 and 2009 with from 2,400 to 2 million square feet.

The vast majority of green buildings analyzed in Greening Our Built World are between 0–4% more expense than conventional non-green buildings. Interestingly some of the greenest buildings — platinum level are between 0–2% of cost while some of the most costly green buildings are less green, This indicates that the quality and experience of the design team is more important than the level of greening.

The cost of greening buildings is small””and makes for a very good investment. From energy savings alone, the average payback time for a green building is six years. Additional benefits include reduced water and infrastructure costs, and health and productivity gains; these benefits more than double the financial gains for green building owners and occupants. Over 20 years, the financial payback typically exceeds the additional cost of greening by a factor of 4–6 times. And broader benefits, such as reductions in greenhouse gases (GHGs) and other pollutants have large positive impacts on surrounding communities and on the planet.

If energy prices rise at 5% per year (which is below the rate at which energy prices grew from 2004 to 2008), then, over 20 years, energy savings are twice the cost of greening.

If energy prices rise at only 2% per year (i.e., at the rate of inflation), then the present value of 20 years of energy savings in green offices is $8/sf, more than twice the typical green premium. However, if energy prices grow more rapidly, at 10% per year (i.e., 8% above inflation), the present value of the 34% lower energy use in green offices is worth about $17/sf, five times the median premium for greening buildings. The volatility of energy prices and the long-term trend of rising demand for finite and depleting fossil fuels make greening and energy efficiency cost-effective risk-reduction strategies.

There have been extensive claims that cutting global warming could severely damage the economy, resulting in widespread job losses and damaging American competitiveness. The book findings””that green design provides a highly cost-effective way of reducing CO2 while creating jobs, strengthening property values, and increasing the health and resilience of communities””demonstrates that these claims are generally wrong. On reflection, it should not be surprising that cutting waste and improving design should be profitable.

A national commitment to green design and increased energy efficiency, along the lines of the green scenario described in this book, would create substantial national wealth””amounting to a net present value of one trillion dollars for the U.S. economy. Given the reality and severity of climate change, a national shift to green design is both financially and environmentally wise.

Until recently, there was little available data on actual sales prices, rents, or other market indicators of the value of green versus conventional buildings. Recent analysis by CoStar, which maintains a database with information on 40 billion square feet of building space, finds that green buildings have positive impacts on rents, occupancy, and sales prices. A 2008 CoStar analysis of 973 Energy Star and 355 LEED buildings compared the value of LEED and Energy Star buildings to non-green buildings that were matched on the basis of size, age, class, and submarket.

Along with the peer comparisons, CoStar used a statistical model to remove the effects of age, location, size, and other factors on the variations in sales price. In this analysis, CoStar estimated that LEED certification had increased sales prices by $24/sf, which is less than the $171/sf increase shown in table 1.6. The $24/sf increase in sales price is roughly 2.5 times the value of energy savings alone. Unlike LEED, the Energy Star standards require only energy efficiency in buildings; the substantially higher disparity in sales prices for LEED versus Energy Star buildings ($171/sf versus $61/sf) indicates that consumers place substantial value on the many benefits of LEED that go beyond energy efficiency, particularly health and brand.

Figure below shows illustrative productivity benefits and public benefits, including job creation and emissions reductions. Adding productivity and public benefits to the picture increases the total public and private NPV to roughly $21/sf for green schools and $24/sf for green offices. In the case of green schools, the productivity impacts would ultimately take the form of improved student performance and long-term earnings.

Detailed analysis of 170 green building provided a basis for documenting a set of financial benefits related to health, operations and maintenance and other attributes. About half the identified benefits were quantifiable — the balance is not included below. These are illustrated below.

Both graphs exclude a range of significant but difficult-to-quantify benefits, including impacts on property values, productivity, student performance, brand benefits, and embodied energy; indirect impacts on water systems; reduced storm-water flow; savings on operations and maintenance; and mitigation of climate change (apart from what is reflected in the CO2 price of $10 ton).

— Greg Kats

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