The True Costs of Building Green

April 3, 2006

The cost premium for green buildings is nominal over that of traditional, "to-code" structures

Thanks to programs such as the U.S. Green Building Council’s landmark LEED rating system for buildings, green facilities have crept into the mainstream.

“There are about 500 million square feet of green buildings under design, development, and completion,” says Greg Kats, principal of Capital E, a Washington, D.C. consultancy focusing on clean energy. “There’s a lot of success in applications of LEED to the different market sectors.”

But challenges toward widespread acceptance remain.

Despite the growing recognition of sustainable practices, green products, and high-performance technologies in building design and construction, concern within the facilities industry continues due to lack of accurate, thorough, and quantifiable information regarding the financial and economic impacts of high-performance buildings. “There definitely are hurdles when it comes to the perception of cost,” notes architect Dan Heinfeld, president of LPA Inc., Irvine, CA. This thought has become a prohibiting factor in the mainstreaming of green building practices.

“There’s a consistent disconnect between capital costs and operating costs,” Kats says. “A building owner knows there is a return on investment of 40 percent going into a green building. Investments come out of capital; but, year-to-year, the operating budget isn’t linked. That’s a big obstacle.”

Over the past several years, various entities have delved into what it costs to build green and the ultimate value that results from constructing an environmentally responsible, high-performing facility in hopes of convincing the facilities industry to rethink construction budgeting and financing.

The end result of such studies? That it costs anywhere from nothing more to a nominal amount more to build green over the budget for a traditionally designed building, according to experts.

Turner Construction’s green guru Rod Wille, the company’s senior vice president of sustainable construction, says basic green design doesn’t have to cost more. “Good-quality building with basic LEED certification as a goal shouldn’t cost any more money. If you want to go to a higher level of green, such as photovoltaics, underfloor air distribution, or something more exotic, it’s going to cost more,” he says. “Most of the designers we work with do the right thing in the first place to make the building well-insulated, and specify good mechanical systems, good lighting, and materials that are non-toxic. Most designers are doing that as a matter of standard procedure.”

Heinfeld is one of those designers. “We believe that every project, regardless of budget or program, can have a sustainable quotient to it,” he says. “It’s really a series of value judgments in terms of where you choose to spend your money.”

Hard Numbers
One of the most current and most referenced studies was performed in 2003 for California’s Sustainable Building Task Force, a group of more than 40 California state government agencies. The report, The Costs and Financial Benefits of Green Buildings, of which Kats is the lead author, examines existing data surrounding the costs and financial benefits of 33 LEED-certified projects in California as compared to conventional designs for those buildings.

Cost data in the report, the first of its kind to fully aggregate the costs and benefits of green buildings, focuses on 25 office buildings and eight school buildings with actual or projected dates of completion between 1995 and 2004. The projects were selected because “relatively solid cost data for both actual green design and conventional design was available for the same building” based on modeling and detailed cost estimates.

In the report, Kats notes that virtually no data for conventional buildings has been collected to determine what the building would cost as a green building. And, most green buildings do not have data on what the building would have cost as a conventional building.

The eight LEED Bronze buildings had an average cost premium of less than 1 percent. The eighteen Silver buildings averaged a 2.1-percent cost premium, while the six Gold buildings had an average premium of 1.8 percent. The single Platinum building was at 6.5 percent.

The report concludes that the average premium for all 33 studied green buildings is slightly less than 2 percent ($3 to $5 per square foot).

Another study, Costing Green: A Comprehensive Cost Database and Budgeting Methodology, July 2004, by Lisa Fay Matthiessen and Peter Morris of Davis Langdon, Santa Monica, CA, notes that the cost per square foot for buildings seeking basic LEED certification - not the Bronze, Silver, Gold, or Platinum levels - falls into the existing range of costs for buildings of a similar program type. “The costs are relatively insignificant compared to the benefits that will be accrued by the occupants of the building,” Wille notes.

Kats agrees: “More and more buildings can be built at the LEED-certified level for little or no cost premium. You can easily get at least half-way to certified at a zero-cost premium.”

Holistic Approach
No one-size-fits-all solution exists in the design and construction of green buildings. Each building is unique and should be considered as such when it comes to addressing the cost and feasibility of green design and construction, whether incorporating sustainable features into a well-designed building or seeking one of the various levels of LEED certification.

The Davis Langdon study notes that one of the most common methods used to establish the cost of green has been to compare final construction costs to the project’s established budget. Specifically, was the budget increased to accommodate the sustainable elements or were the elements incorporated into the project using funds that were originally available?

For the 61 LEED-seeking buildings studied by Davis Langdon, researchers found that more than half of the projects had original budgets set without regard to sustainable design, yet received no supplemental funds to support sustainable goals. Of those that received extra funding, the supplement was usually provided only for specific enhancements or requirements, such as photovoltaic systems. Such supplemental funding ranged between 0 and 3 percent of the initial budget.

As industry experts stress, the only effective way to budget for sustainable features in buildings is to identify sustainability goals and build an appropriate cost model for them upfront, at the start of the planning and design process.

According to Kats’ study, the majority of cost premiums in the 33 California buildings resulted from the increased architectural and engineering design time needed to integrate sustainable building practices into projects. “The thing about green buildings is that they are much more cost effective if you do them as a whole rather than piecemeal,” he says. “The key is to start very early, include everyone, and have senior management take the lead responsibility on greening.”

Heinfeld says he sits down with clients and asks them to give him their budget. He then tells them that he will design the greenest building he can design within that budget. “If you make it part of the building’s DNA, it isn’t going to cost more,” he says, adding that these early conversations are where the green building discussion needs to take place. “Don’t look at it as an added-on approach. If you go that route, it will cost more.”

Green isn’t going to be cost effective or work to the highest levels of efficiency if it is tacked on somewhere in the middle or the end of the project, a practice that Wille calls “glued-on green.” “After a building is half-designed, don't say, ‘Why don’t we put recycled carpet in?’ ” he says. “That’s not cost effective at all. It really needs to start in the planning stages with a real commitment by a decision-maker.”

Value Judgments
Four attributes of green building design - increased ventilation control, increased temperature control, increased lighting control, and increased daylighting - have been positively and significantly correlated with increased productivity. Indoor air quality also has been linked to potential productivity and health gains in workplaces and educational facilities. “The biggest benefits of green building come in the form of benefits to the occupants,” explains Wille.

Analysis of such beneficial areas as those in Kats’ study reveals that total financial benefits of green buildings are more than 10 times the average initial investment required to design and construct a green building. Energy savings alone, the report states, exceed the average increased cost associated with building green. These benefits and savings mark the true value of sustainable construction.

Also consider the productivity factor. “If you can increase productivity by more than 1.5-percent over the 20-year term of a building, that translates into $40 per square foot you can put into a building based on the ultimate term of high productivity,” Wille says. “You can spend $40 per square foot more because you’re going to get that back.”

Because of these value issues, Kats says, traditionally built facilities are beginning to face an obsolescence risk now that the costs of green building are proving to be negligible, giving building owners a more attractive and affordable option to construct a sustainable, high-performance building in lieu of a traditional, “to-code” building.

“You have a choice between a building designed to be healthy and efficient or one that is not,” Kats says. “With a 50-year life-cycle investment, green buildings are growing at a rate of 40 to 50 percent each year. As energy pricing increases, the risks of doing conventional design are increasing. The obsolescence risk is becoming a big phenomenon.”

Consider the fact that it often takes 3 years or more to create a new building (from planning and design to occupancy). Kats notes that in 3 years - 2009 - between 20 and 25 percent of new construction will be green. If someone today orders a new building that will take 36 months to build, isn’t it smarter to build one that has added value and a healthy environment than one that barely meets code?

“We don’t need hundreds of sustainable buildings in the future; we need thousands,” Heinfeld says. “We’re not in a situation where we need demonstration projects. Every building needs to use less energy and less water.”

Robin Suttell ([email protected]), based in Cleveland, is contributing editor at Buildings magazine.

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