Building Green: Cost v. Benefit

As an article in the July 2006 issue of Eco-Structure Magazine pointed out: "The question has changed from `should we go green’ to `how do we do it.’" (See Concrete Points to Green in the above issue.)

As the graph at left shows (and will be explained below), the cost to benefit ratio of going green is no longer at issue. It’s the `how’ that is the rub, because the `how’ of green building is not a simple question to answer. As we shall see in this short article, there are many variables at play, and they all interact to produce an ultimate cost/benefit to the owner, each affecting the overall efficiency of the building.

According to a New York Times article, green building methodologies once added as much as 20% to the cost of construction, no matter how one chose to go about it. Today the availability of green materials and building systems have dropped that cost to a much more manageable level.¹ But that doesn’t mean it doesn’t add cost. As Mother Earth News pointed out in an article a few months ago: ". . . efficiency may come with a higher price tag — whether it’s a new home with the latest technology or an existing home remodeled with energy improvements, such as added insulation or a more efficient furnace." In 2003 a California study entitled "Managing the Cost of Green Buildings" reported the cost premium for achieving LEEDS ratings at 2.5% for Certified, 3.5% for Silver, 5% for Gold, and 8.5% for Platinum. Though they did note that the costs have been declining in recent years.²

If one examines utilizing green building techniques solely from an economic perspective, then the additional initial construction and design expenses should result in lower operating costs for the building. And in fact green buildings do just that. Sometimes they achieve dramatically lower costs.

A prime example: The Reilly
Home. General contractor Bill Rielly built his own 6,300 square foot home in Hyde Park, New York. The HVAC system is tied into geothermal vents. The photovoltic cells on the roof generate the electricity. He hasn’t paid an electric bill since moving in, in November of 2005! (Here in California the utility company would be required to buy surplus electricity back, further reducing the operating cost of the building.)

So how much can be saved in relation to how much is spent? In economic terms this is called "Life Cycle Costing" (LCC) and, if you’re an economist or statistician, LCC is a relatively straight forward process.

In the accompanying charts, Q* shows the point at which energy cost savings and LCC reach optimum. To the right of this point, savings vis a vis expenditures decline remarkably. In all three charts it pays to increase the level of investment to increase energy savings if the level of investment is to the left of Q*. It rapidly becomes less and less cost efective to increase the level of investment as the investment amount moves further and further to the right of Q*.³

Obviously, while specific dollar amounts will change over time, and will be unique to each project, current models show that the relationship between the various variables: Investment Costs versus Total LCC, Operating Costs, and/or Operating Savings, for instance, all remain relatively constant.

The trick for the designer or architect and builder is in trying to fit the variables together so that the project lands precisely where you intended it to relative to Q*. If you have the money and are very environmentally oriented, you might want everything to be as efficient and evironmentally friendly as possible. Your project would end up on far the far right hand side of the charts, squeezeing every penny of efficiency per dollar invested in your project.

Or you might not have enough money in the budget to reach Q*, but you want to get as close as possible. For you, your design team will have to work hard to find the best compromises in efficency per dollar invested.

Public entities might choose to evaluate bids based on the cost to achieve Q*, rather than on the standard formula of accepting the lowest qualified bid.

In the final analysis, it is clear that building green is already cost effective when compared to traditional building methods, and is therefore a wise use of investment dollars — for private home builders and government agencies both. It is also clear that the cost/benefit value of green building is only going to increase over time. The costs associated with green building and design continue to fall as manufacturers scale up production, and as techology and sources of green materials improve. At the same time, the cost of gas, electricity, and heating oil continue to rise. No wonder green building is the hottest topic in the construction industry.

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1. The New York Question: how Green Is My Tower, New York Times, Robin Pogrebin, 4/16/2006.
2. Geof Syphers, Mara Baum, Darren Bouton, Wesley Sullens. "Managing the Cost of Green buildings.” KEMA. October 2003.
3. RS Means, Green Building: Project Planning & Cost Estimating, 2^nd Edition.(Reed Construction Data, Kingston MA, 2006), pp. 303-6. Charts included in this article are my own adaptations of those published on the listed pages.

This entry was posted on Monday, April 16th, 2007 at 9:10 pm and is filed under Building Systems & Methods. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.