The confounding complexities of building green

The construction industry is overstating the cost of green building, creating a huge barrier to the use of more energy efficiency in future developments.

By Joel Makower

NEW YORK (CNNMoney.com) -- A survey released last week by the World Business Council on Sustainable Development found that key players in real estate and construction overstate the extra costs of green buildings by some 300 percent, "creating a major barrier to more energy efficiency in the building sector."

Respondents to the 1,400-person global survey (Download - PDF) - co-chaired by United Technologies (Charts, Fortune 500) and Lafarge (Charts), both global companies heavily in the building sector - estimated the additional cost of building green at 17 percent above conventional construction, more than triple the true cost difference of about 5 percent.

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At least, that's what the WBCSD's press release told us, and what most news organizations dutifully reported.

The study itself told us something else: It's not just the money, honey. Building green turns out to be an overly complex proposition, with a fragmented value chain and a confounding lack of integration and coordination among the various players. Moreover, the study found, incentives to reduce energy use usually are split among these players "and not matched to those who can save the most through energy efficiency."

Even a brief examination of the motivations and interests of the players involved with the creation of a building reveals the disconnect when it comes to making them green:

  • Developers are frequently speculative, which inevitably results in a short-term focus on buildings' financial value. Even when developers plan to hold on to property as an income stream, they don't typically benefit from energy-efficiency measures, as energy cost savings go to the occupants, even though the developer incurs the investment cost.
  • Architects and engineers can be influential on green matters, but their influence on key decisions may be limited, especially if they do not work together in an integrated fashion.
  • Owners that rent their buildings have interests different from those of end users. Owners that plan to lease or occupy a building themselves are the ones most likely to consider investments that may have paybacks over several years.
  • End Users are often in the best position to benefit from energy savings, but they may not be in a position to make the necessary investments. This also depends on the financial arrangements among owners, agents, and users, which may include a fixed energy fee per square foot, regardless of actual consumption, thus eliminating financial incentives to conserve energy.

There are other players: leasing agents, local authorities, lenders, construction specifiers and on and on. Each brings their own interests to the party. Conclude the authors: "The complexity of interaction among these participants is one of the greatest barriers to energy-efficient buildings."

That's a worrisome finding, one that suggests that even at cost-parity, making buildings greener might be a tough sell.

"I'm not sure when it started, but the industry developed in a very expert-oriented way," Bill Sisson, Director of Sustainability at United Technologies, told me recently. "The industry evolved itself around areas of expertise and investment. As it evolved over time, you have this structure that doesn't naturally lend itself to a common set of decisions being made through the process."

Along the way, this leads to decisions that are short-term, at best, or at least ones that aren't in everyone's best interests. "It's sad, but in many cases you find the marble in the lobby gets higher preference to a new higher-performing chiller or mechanical system because of who makes the decision, and which one is valued more," says Sisson, who led the WBCSD project on behalf of UTC.

What do to about this state of affairs? The WBCSD study concluded that financiers and developers are the biggest barriers to more sustainable approaches in the building value chain.

WBCSD identified eight factors that influence decision-makers about sustainable buildings, four of which "are the main barriers to greater consideration and adoption by building professionals and are the most significant in influencing respondents' consideration of 'sustainable building'." They include:

  • Personal knowhow - whether people understand how to improve a building's environmental performance and where to go for good advice
  • Business community acceptance - whether people think the business community in their market sees sustainable buildings as a priority
  • A supportive corporate environment - whether people think their company's leaders will support them in decisions to build sustainably
  • Personal commitment - whether action on the environment is important to them as individuals

Sisson points out that a small but growing number of building professionals are attempting to avoid the industry's stovepiped mentality by employing an integrated design process, in which the various players get together - virtually or face to face - to examine various trade-offs. This may seem like an obvious solution to fragmentation, but it's nothing less than revolutionary for the building industry.

For example, in working with its own customers, United Technologies - whose Carrier division has been one of the prime movers in the green building sector, and one of the original conveners of the U.S. Green Building Council - has borrowed some tools and techniques from its aerospace division.

"If you think of an aircraft as a building with wings, it's got all the same basic ingredients - power systems, environmental control systems, creature comforts," explains Sisson. "And aircraft manufacturers are very sensitive to fuel consumption. So, to design an aircraft effectively you need to bring concurrent engineering thinking into the design of the aircraft."

UTC is beginning to deploy some of this same "concurrent thinking" in its building division. Says Sisson: "We have to go beyond just thinking about air conditioning. We have to think about how the air conditioning is part of the building system, and how customers can more effectively make those trade-offs" - for example, between building orientation, the number of windows, or the thickness of insulation on the one hand, and the size of the air conditioning system on the other. (And how all of this relates to the cherished marble lobby.)

It's not just about building greener buildings, of course. It's also about building more profitable ones. Lighting, cooling and maintenance make up as much as 85 percent of a building's fifty-year life-cycle cost, and the lion's share of those costs are locked in during the design phase, before any construction begins. So, thinking through costs, benefits, and trade-offs early on has a high leverage factor.

Moreover, there is evidence that an energy-efficient building can command a premium. According to the Green Building SmartMarket Report 2006, professionals expect greener buildings to garner an average 7.5 percent increase in value over comparable standard buildings, together with a 6.6 percent better return on investment.

Sisson acknowledges that the WBCSD report defines the business levers, but falls short of citing specific recommendations. His WBCSD working group is now engaged in scenario planning, forecasting, and modeling to come up with a robust set of recommendations on the policy, finance, technology fronts, with the aim of breaking through the barriers to make building green an easier process for everyone involved.

Of course there's an additional front to be addressed: human behavior. Developers and all the other players need to change their habits, break the cycle from "that's the way it's always been done" to "how can we do it better?" As the WBCSD report makes clear, that's a question that often goes unasked.

And it's not just the building community that has issues here. Building occupants can thwart even the best-designed and implemented green schemes. As Sisson puts it: "Just because you give the most energy-efficient building to a user, doesn't ensure that it will be used in the most energy-efficient way."

Joel Makower, a green business writer and strategist, is Executive Editor of GreenBiz.com and writes the blog, Two Steps Forward. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.