Buildings
construction, an estimated 10-12 per cent and 6-10 per cent is green, representing a US$ 24-29 billion and US$ 12-20 billion market, respectively. By 2013, the green commercial construction market is expected to grow to US$ 56-70 billion annually and the green residential market is expected to grow to US$ 40-70 billion (McGraw Hill 2009).
Although impressive, this market-driven change is not sufficient to meet the US$ 209 billion average annual investment required in the USA alone to reduce the building sector’s carbon footprint in line with the IEA’s projected low-carbon pathway (Houser 2009). Increasing investment in green buildings will require policies, and smart policy design requires an accurate appraisal of the costs and benefits of green building investments.
3.2 Measuring the costs and benefits
A correct evaluation of green building economics requires a Total Cost of Ownership (TCO) approach, where the differences in upfront investment costs (known as first costs) are considered alongside long-term costs and benefits. While certain green buildings may cost more to construct than a conventional alternative, the first cost premium may be recouped through lower energy bills, avoided climate change impacts, improved public health or increases in worker productivity. Box 1 describes the economic benefits of green buildings technologies and how these can offset their investment costs over time.
Looking only at the cost differential between constructing green and conventional buildings, a recent study by Greg Kats (2010) suggests that cost premiums are considerably lower than generally perceived. Data from 170 green buildings in the USA showed that they cost on average only 1.5 per cent more than conventional buildings, while public perception of the average additional costs of going green were 17 per cent. Per square metre the green premium ranged from US$ 0/m² to US$ 764.2/m² with a median of US$ 36.6/m².13
While Kats found the
premium to be often greater for buildings achieving higher green standards, these same high standards were in many cases achieved with minimal or zero additional cost. This suggests that the green-cost premium depends to a great extent on the skill of the designers and builders, rather than on the level of greenness per se. The study also indicated that green retrofits have a slightly higher average green premium than new construction.
13. Original text indicates per square foot a green premium ranging from US$ 0/sf to US$ 71/sqf with a median of US$ 3.40/sqf.
Boxes 2 (China) and 3 (US) show the challenge of weighing short- and longer-term costs and benefits, as well as the tendency for growing energy consumption to undermine efficiency gains in commercial and residential buildings. Box 2 presents a case study of residential construction in China and illustrates the energy savings from design and management interventions. From this and other studies, it is clear that green buildings have a significant economic return on investment, and should occupy centre stage for long- term policies that aim to change patterns of production and consumption behaviour.
Although a wealth of energy efficiency measures and their attendant carbon emission reductions come at zero or even negative cost, policy intervention is needed to transform the global building stock in line with what the IEA sees as necessary to put the world on a low-carbon pathway. They also show the need for approaches that are regionally specific to reflect local building industry and local economic realities, mindful that the urban challenge in green building shows many similarities across regions.
An example of new policy and regulatory intervention comes from the EU’s Energy Performance of Buildings Directive15
Comparative efficiency by sector and region The economic benefit of green building investment is backed up by low or even negative costs of greening the building sector. One study estimates that 3.5 gigatons of CO2
emissions could be reduced through investment in
green buildings by 2030 at an average abatement cost of -US$ 35 per tonne.14
This compares with -US$ 10 per tonne
in transportation, US$ 17 per tonne in steel production or US$ 20 per tonne in the power sector (McKinsey 2009). Going beyond 2030, the Peterson Institute study Houser (2009) found that achieving the 8.2 Gt (i.e. aiming at 450 ppm) of emission reductions from the building sector by 2050 would cost US$ 25 per tonne, but it would still be among the cheapest sources of abatement. Failure to transform the building sector and reliance on more costly emission reductions from the transport, power and industrial sectors would increase the economic cost of combating climate change by at least US$ 500 billion per year globally between 2010 and 2050.
(EPBD), which has generated debate about
time frames for meeting requirements, the level of harmonisation across countries and the possible administrative burden imposed (e.g. compulsory
14. The reduction of 3.5 Gt of CO2 by 2030.
increased energy efficiency is part of a larger emission reduction of 38 Gt in 11 sectors, which aims to bring CO2
emissions from buildings through emissions close to the 450 ppm target
15. The EPDB directive combines regulatory (energy performance requirements) and information-based (certification and inspection) measures and provides a holistic approach to emissions reduction, which encompasses the energy needs for space and water heating, cooling, ventilation and lighting.
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