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The Cost of Building Green
Sarah Rich, 12 Oct 06

254173909_61dcbf9da0_m.jpg When it comes to small things -- cell phones, kids' toys, clothing, computers -- it's easy to conceive of an item's entire lifecycle, and the benefits of buying something that will last better and longer, even if it costs a few bucks more. But thinking about large-scale architecture in cradle-to-cradle terms, and trusting the return on upfront investment, is a much more challenging task.

Leaving aside that many homeowners and developers are more interested in the bragging rights of Brazilian granite or the savings of vinyl, it's just plain hard to imagine when you'll see the dollars you sink into a building or renovation project. Architects can draw up the greenest house imaginable, but when it comes to implementation, hurdles abound.

An interesting article came through our pipelines from Patrick Rollens, a writer for commercial real estate trade journal, which closely examines the premiums for achieving LEED basic compliance, and reveals that those premiums are starting to drop, and the rift in perception between "first cost" and "lifecycle cost" is starting to close, giving builders real reasons to go green.

Getting behind the "it costs more" resistance to building greener does require some philsophical consideration -- as in, what does more mean? It's a question of economics couched in a question of mindset. This is the very factoring that comes into play with environmental economics; what is the true cost of any project when you look at its impacts on the earth -- and its benefit to the user -- over the entire span of its functional existence (and through its disassembly and disposal)?

Interestingly, when Gil wrote about the economics of green building last year, he pointed out that untangling the economic argument around building greener really is a question of attitude and conviction. Apparently, there is no clear correlation between cost and the integrity of a building's ecological profile; successful green construction is about early adoption and sufficient understanding of new building techniques.

In that piece, Gil quoted a Washington Post reporter who tagged energy efficiency in building as being intergral to energy savings and economic stability at a national level. At that time, the expressed sentiment was exasperation at government response to green building efforts.

It's an interesting place to circle back to the more recent article cited above, which emphasizes that as the largest landowner on the planet, the U.S. Government may actually become the tipping point for widespread adoption of green building. "[T]heir willingness to embrace green design in federal buildings, military bases and auxiliary facilities will irrevocably drive sustainable design into the mainstream." With the demand this would create, of course, the market would be able to produce more at a lower cost, and the argument between initial investment and eventual return might begin to reconcile itself.

[image] (More on that building here.)

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Great post Sarah. I make my living designing small "Green" buildings, so I do the economic analysis a lot. I think that the trick is to translate "project cost" into "finance payment" (mortgage, opportunity cost, etc.). Then the finance payment should be bundled with all the other payments associated with a building: energy, water, maintenance, etc. What one wants, of course, is the lowest total bundle of payments - no one ever writes one check for a building.

The single largest expense in many buildings is payroll. When one can document how a building can help people do their jobs better, the economics are especially good - ask any business owner to calculate the value of a 5% improvement in productivity.

A significant part of the cost premium for LEED buildings has been documentation rather than green features per se. That cost is diminishing as the LEED process becomes better managed and as more professionals gain experience with it.

The economics of green building would look even better if we truly did full-cost accounting, but even using today's half-baked economics, the financial case for green buildings is strong, if one does the analysis thoroughly and well.

Posted by: David Foley on 13 Oct 06

Sarah, excellent observations. Thanks also for linking to my article. I've trying to stay close to this topic since that initial article, and it's been interesting. A lot of big institutional players are starting to embrace sustainable design. GM, for example, just opened a Gold-certified auto manufacturing plant in Lansing, Michigan...with a cost-neutral effect on the bottom line.

Posted by: Patrick Rollens on 17 Oct 06



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