The Business Case and Economics of Green Buildings

(A paper on Green Building Economics)

Author Note
Correspondence concerning this article should be addressed to Chaitanya Kota, M.E.
Rinker, Sr. School of Construction Management, University of Florida, Gainesville, FL 32611.

Chaitanya Kota
kota1991@ufl.edu
UFID: 2914-3535
M.E Rinker School of Construction Management
University of Florida.

Abstract
In the United States the Green Building movement started with the demand for more
energy efficient buildings and environmental friendly construction practices. The Energy crisis
and the environmental pollution concerns in the mid 60s and 70s was the time when the initial
thoughts about the Green Buildings came up. There are number of practices, techniques that are
followed to make a building green. It starts from the selection of the site, efficiency of the design
of the structure, energy efficient measures by using latest technologies in building automation.
Water efficiency is also a part of the green buildings. Low flow fixtures, waterless urinals and
rain water harvesting are the part of the water efficiency measures which adds up to the total
cost. Materials efficiency, Indoor environmental quality enhancement, Operations and
maintenance optimization are also major factors that are considered in a Green Building. The
perception that green buildings cost higher than conventional buildings is analyzed to determine
the reasons for higher costs. If the costs are higher, the reasons why are developers still pursuing
green buildings are being discussed. And the justification for the higher costs is explained in
detail.
Keywords: Rise of Green Buildings, Supply, Demand, Value, Green Building Economics.

Introduction:
According to USGBC Green Building Economic Impact Study (2015), the US spending
on green buildings is expected to grow at a rate of 15.1% a year from 2015 to 2018, with an
estimated spending of $224.4 billion in 2018. Additionally, the study predicts that from 20152018, green construction will contribute an additional $303.4 billion in GDP and support 3.9
million jobs. Cost of the construction is one of the most criticized factors of a Green Building.
Photovoltaics, Energy efficient fixtures such as LEDs, Low e Glass for efficient external facades
and implementation of newer technologies would add up to the cost of the construction of the
building. When we consider the additional cost of the green buildings, Greg Kats, President of
Capital E and green venture capital advisor says, Its a premium product, and it should cost
more. He compares the buildings with the cars, clothes and food in which the premium products
are definitely higher than the normal products.
Interest of the Commercial Sector

There are a number of reasons a why commercial companies are opting for the green
buildings. Awareness of the environment or may be showing themselves to the consumers as
environmental friendly is one of the main reasons. Along with it, studies show that there has been
a substantial increase in the productivity of the people working in a green building. Along with
the others, green buildings are meant to save the energy costs for the owner. The most important
reasons for the overall trend in the green buildings is demand by the consumer and demand by
the market. And as per the USGBC, by the end of 2013, the global green building market grew to
$260 billion, and the commercial building market might invest over $960 billion by 2023.

Do the Green Buildings really save energy? If we could call a structure as a green
building by definition, and not by a specific certification, yes. With an expenditure of around
$184,000, a major hotel project spent for its energy efficient measures and managed a savings of
$58,035 in a year which resulted for a breakeven point in a span of just around 3 years. A study
says that the operating costs of the green buildings decrease by 13.6% for the new construction
and 8.5% for the existing projects. The value of the building increases by 10.9% for the new
construction and 6.8% for the existing projects. From a life cycle perspective, there are many
studies in the literature which could give the benefits and merits of the green buildings. Based on
the studies by Green Building Counsel of Australia, the increase in the productivity of the people
in a green building can increase up to 25%.
Example of a successful High-rise High Performance Green Building
Manitoba Hydro Place
Located in Winnipeg, Manitoba, it is the headquarters of the Manitoba Hydro. With an
area 695,000 sq. ft. Manitoba Hydro Place received a LEED Platinum Certification in 2012. This
building features a Geothermal HVAC systems, which dug to a depth of 380 feet and 377 feet tall
solar chimney. It consists of a meter-wide double exterior faade. This building integrates both
the active and passive elements for its energy saving measures. Active systems include dimmable
lighting and automated building management system which handle the external faade. South
facing winter gardens, Solar Chimney, Geothermal Systems and natural day lighting systems
indicate the passive design of the building.
Out of 695,000 sq. ft., 85% of the space is day lit which makes it to utilize energy at a
low of 88kw/m2 with energy savings of 64.9%. 100% of the office space can be ventilated or
cooled with operable windows.

Pinned from Manibotahydroplace.com

Certification.
Energy savings are obvious in high-performance buildings as found in many studies. In
an analysis of District of Columbias Private Building Benchmarking Disclosure (2012), 275
office buildings were examined for energy usage. 254 out of 275 reported valid information,
consisting 115 LEED certified and 139 non-LEED certified buildings. It was found that LEEDcertified buildings had 13% less average site EUI and 11% lower average electricity usage,
saving over $80000 per year for an average building area of 359,000 SF. In another study of 22
LEED certified buildings by General Services Administration (GSA, 2011), it was found that
LEED certified used 25% less energy compared to national average. A few Green Building
standards are criticized, for example, USGBCs LEED is criticized that it does not create energy
efficient buildings. A study by Washington Examiner showed that a few Buildings in general that
are not certified with LEED performed better than LEED certified buildings. And in another case

study by USA Today, it is found that the contractors target the easy points that can be obtained to
get the certification, which necessarily doesnt make the structure energy efficient. Henry
Gifford, in his book A better way to rate green buildings, criticizes the LEED Going to so
much trouble and expense to end up with buildings that use more energy than comparable
buildings is not only a tragedy, it is also a fraud perpetuated on US consumers trying their best to
achieve true environmental friendliness. Though this has changed very recently,
Alabama, Georgia, Maine, and Mississippi have banned LEED as they prefer only one wood
certification program over the others.
Conclusion
Reviewing the literature clearly states that Green Buildings outperforms the conventional
buildings in all the areas. Coming to the question, if the green buildings cost more than the
conventional buildings, there is no conclusive answer yet. There is very little evidence that the
green buildings cost less than the normal buildings. Studies shows that more than 90% of
buildings fall under 20% of excessive cost for a green building. Further research is still required
to provide measurable definitions for the green building and to define the green cost premium
and its measurement methods. To provide measurable definitions and green cost premium of the
buildings further research is required. The green building industry is clearly growing at a rapid
rate, due to acceptance of their benefits in terms of money as well as the environment by users
and builders. With further governmental incentives, public awareness and a higher number of
green building professionals, the challenges can be met.

References:
1. Australia, G. B. C. (2006). The dollars and sense of green buildings: building the
business case for green commercial buildings in Australia.
2. Dwaikat, L. N., & Ali, K. N. (2016). Green buildings cost premium: A review of
empirical evidence. Energy and Buildings, 110, 396-403.
3. Fowler, K., Rauch, E., Henderson, J., & Kora, A. (2011). Re-assessing green building
performance: A post occupancy evaluation of 22 GSA buildings. Pacific Northwest
National Laboratory: Richland, WA, USA.
4. http://analyticsstore.construction.com/index.php/2012-world-green-building-trends-keyfacts.html
5. http://naturalleader.com/research/2012-world-green-building-trends/influences-on-thegreen-building-markets/triggers-to-increased-levels-of-green-building/
6. http://www.usatoday.com/story/news/nation/2012/10/24/green-building-leedcertification/1650517/
7. http://www.usgbc.org/articles/business-case-green-building
8. http://www.washingtonexaminer.com/exography-leed-certification-doesnt-guaranteeenergy-efficiency-analysis-shows/article/2538046
9. https://www1.pnc.com/pnctower/#pnc_building_green
10. Lau, L. C., Tan, K. T., Lee, K. T., & Mohamed, A. R. (2009). A comparative study on the
energy policies in Japan and Malaysia in fulfilling their nations obligations towards the
Kyoto Protocol. Energy Policy, 37(11), 4771-4778.
11. Levine, M., rge-Vorsatz, D., Blok, K., Geng, L., Harvey, D., Lang, S., ... & Rilling, J.
(2007). Residential and commercial buildings. Climate change, 387-446.
12. Ries, R., Bilec, M. M., Gokhan, N. M., & Needy, K. L. (2006). The economic benefits of
green buildings: a comprehensive case study. The Engineering Economist, 51(3), 259295.
13. Yudelson, J. (2010). The green building revolution. Island Press.