The Value of Green Building and its Spillover Effects

Published June 6, 2018

2018-10-24 11:11:27

The Georgia Institute of Technology has begun construction on one of the first “Living Buildings” in the Southeast that seeks to transform the local building and construction industry. Living Buildings (similar to other green building programs) achieve certification by accruing credits across a number of criteria. Living Buildings must produce more energy than they use, treat all water on-site, and be regenerative spaces that connect occupants to light, air, food, nature, and community. In this discussion, I summarize the motivations for organizations to build and certify green and why we might expect Georgia Tech’s demonstration project to begin market transformation in the building and construction industry.

Green building is thought to have a wide range of benefits for society and for the building occupiers. Improved energy and water efficiency are the more obvious benefits, but green buildings have improved indoor air quality; employees are more productive and miss fewer days due to illness; and high-quality employees are easier to hire and retain. Green Buildings also provide a number of benefits to society including, but not limited to, reduced construction waste, the use of environmentally friendly materials in construction, and improved storm water retention and treatment.

Certification and labeling programs for green building – such as the United States Green Building Council’s Leadership in Energy and Environmental Design (LEED) or the International Living Future Institute’s Living Building Challenge (LBC) incentivize the private production of public goods. These programs work by supplying a marketing benefit in exchange for investing in additional building upgrades that may have not been cost-effective without the marketing benefit gained by certification.

Investments in a Living Building provide a number of direct benefits to the building owner, benefits associated with certification, and positive spillover effects for future builders.  

First, there are the direct benefits of the building technologies. The Living Building is expected to be net energy and water positive – that is it will produce more electricity and treat more water than it uses. By using sustainable materials and through innovative design, it is expected to be a place people want to work and inspires creativity and productivity.

Second, there are benefits associated with certification. Certification allows organizations to “signal” stakeholders that they have certain characteristics and qualities. And research suggests that certified buildings secure a market premium in the commercial real estate market. While Georgia Tech will not lease space to customers or clients, Georgia Tech experiences a number of reputational benefits associated with certification. Certification communicates to stakeholders, such as students, employees, potential donors, and the Atlanta and Georgia communities that Georgia Tech is an innovative, sustainable institution, dedicated to being a leader in the sustainable community movement.

Third, by being an early adopter of the advanced energy and environmental technologies that are incorporated into the Living Building, Georgia Tech lowers the costs for future adoption of similar technologies and practices. Information costs associated with green building procurement, including the poor understanding of the potential costs and benefits associated with the technologies themselves, deters builders and contractors from investing in green building practices and technologies.  By building a demonstration project, Georgia Tech incurs costs associated with implementation of a new program including establishing new supply chains and overcoming procurement difficulties. A new certification program inevitably involves increased challenges and costs associated with documentation and verification of performance. Significant investments in human knowledge and know-how need to occur in order to reach certification. By laying out a path to achieve Living Building certification, Georgia Tech reduces costs for future adopters and increases the probability that other organizations undertake similar efforts. Georgia Tech’s investments in advanced energy and environmental technologies also allow potential future adopters to have a better understanding of the costs and benefits associated with these technologies. By sharing information with interested parties, either through workshops, seminars, or conferences, stakeholders involved with the Living Building are able to directly convey valuable information on specific implementation and operational strategies for success.

Based on past research and theory, we ought to expect that a Living Building at Georgia Tech will have multiple pathways to effectiveness. We should expect it to reduce energy and water impacts at Georgia Tech. It is expected to be a desirable place to occupy, with potential creativity and productivity benefits. We should expect it to increase Georgia Tech’s reputation as an innovative and sustainable place to live, work, and learn. And finally, we should expect that it increases the probability that others pursue Living Building certification in the Atlanta region in the future, as this project should reduce costs associated with pursuing certification while improving the understanding of the benefits of technologies and practices in the building. These spillover benefits of green building are difficult to measure. My current research is aimed at shedding light on the pathways and magnitude of these effects, with results from research in progress confirming that a demonstration project increases the probability of regional market uptake of certified buildings by at least 12 percent, with additional benefits accruing from market development and economies of scale. Extensions of this research will highlight the mechanisms that lead these effects to occur.

Daniel Matisoff is an associate Professor at the Georgia Institute of Technology. 

 

Related Resources:

https://livingbuilding.gatech.edu/

Akerlof, George A. “The market for” lemons”: Quality uncertainty and the market mechanism.” The Quarterly Journal of Economics (1970): 488-500.

Asensio, Omar Isaac, and Magali A. Delmas. “The effectiveness of US energy efficiency building labels.” Nature Energy 2 (2017): 17033.

Eichholtz, P., Kok, N., & Quigley, J. M. (2010). Doing well by doing good? Green office buildings. The American Economic Review, 100(5), 2492-2509.

Matisoff, Daniel C., Douglas S. Noonan, and Anna M. Mazzolini. “Performance or marketing benefits? The case of LEED certification.” Environmental Science & Technology 48.3 (2014): 2001-2007.

Matisoff, Daniel C., Douglas S. Noonan, and Mallory E. Flowers. “Policy monitor—Green buildings: economics and policies.” Review of Environmental Economics and Policy 10.2 (2016): 329-346.

Potoski, Matthew, and Aseem Prakash. “Green Clubs and Voluntary Governance: Iso 14001 and Firms’ Regulatory Compliance.” American Journal of Political Science 49.2 (2005): 235-48.

 

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