Policy Monitor—Green Buildings: Economics and Policies

Abstract

This article presents an overview of green building economics and policies through a survey of theoretical and empirical evidence concerning green building practices. We define green building policy as policies that affect the entire life of the building, from design and construction to operation and deconstruction. We examine the economics of green buildings in the United States, with particular emphasis on market failures in the building sector such as information problems and externalities. We also discuss how policy instruments are used to address these market failures. We present original data on the types and potential impacts of these policy instruments in the United States, along with a brief review of international green building programs. We conclude by describing challenges for the empirical study of green buildings and priorities for future research and policy in this area.

...

A number of studies have found empirical evidence of financial benefits for building owners. For example, Eichholtz, Kok, and Yonder (2012) find that real estate investment trusts (REITs) that have a larger percentage of LEED-certified properties in the portfolio have a higher value and lower price volatility than REITs with a lower percentage of LEED-certified properties. Deng and Wu (2013) find that Green Mark–certified properties in Singapore command a 9.9 percent premium in the resale market, but that initial transactions command a premium of only 4.4 percent, suggesting that green certification may reduce information asymmetries in the resale market. Chegut, Eichholtz, and Kok (2014) show that buildings in the United Kingdom that are certified according to the BRE Environmental Assessment Method rent for longer contracts and at a 28 percent rental premium. They also find that green certification provides a higher premium for rental properties than for properties that are for sale, highlighting the role of certification in reducing information asymmetries and providing a low-cost way for prospective tenants to judge the overall quality of a property.

https://en.wikipedia.org/wiki/Green_building

Interestingly, the financial value of green buildings does not appear to be limited to operational costs. Eichholtz, Kok, and Quigley (2013) find a premium for the sustainability certification, in addition to energy use certifications. Similarly, Reichardt (2014) finds that the price premium for LEED buildings exceeds the value of its lower operating expenses, suggesting a premium for “sustainability” or market advantages that goes beyond reduced operating expenses. Note that Chegut, Eichholtz, and Kok (2014) find that market premiums on green building certification deteriorate as more nearby buildings certify, indicating that late adopters will gain less premium for certification.

...

http://reep.oxfordjournals.org/content/10/2/329.full

by Daniel C. Matisoff*, Douglas S. Noonan† and Mallory E. Flowers‡

*Associate Professor, School of Public Policy, Georgia Institute of Technology, 685 Cherry Street NW, Atlanta, GA 30332; Telephone: 404-385-2623; Fax: 404-385-0504; e-mail: matisoff@gatech.edu.

†Professor, School of Public and Environmental Affairs, Indiana University Purdue University–Indianapolis, 801 West Michigan Street, BS 4037, Indianapolis, IN 46202; Telephone: 317-278-2448; Fax: 317-274-7860; e-mail: noonand@iupui.edu.

‡Doctoral Student, School of Public Policy, Georgia Institute of Technology, 685 Cherry Street NW, Atlanta, GA 30332; Telephone: 404-385-3082; Fax: 404-385-0504; e-mail: mflowers8@gatech.edu.

Review of Environmental Economics and  Policy http://reep.oxfordjournals.org

Volume 10, Issue 2; Summer, 2016; pages 329-346.

First published online: August 23, 2016

Attention to Distribution in U.S. Regulatory Analyses

Abstract:

Before promulgating a major environmental, health, or safety regulation, U.S. government agencies are generally expected to analyze the distribution of its impacts as well as its total costs and benefits. We review several regulatory analyses to determine whether this expectation is being met. We find that agencies’ analyses provide little information on distributional impacts. Often they note only that the regulation will not adversely affect the health of children, minorities, or low-income groups. This lack of attention to distribution may be philosophical, with regulators believing they should choose the option that maximizes net benefits as long as the health of these groups is not harmed. It may also be motivated by pragmatic reasons, including concerns about political and legal implications; an assumption that distributional impacts are small; or data, time, and resource constraints. We argue that this focus on the possibility of health-related losses, and the lack of analysis of the full distribution of both benefits and costs, is problematic. However, the feasibility and desirability of more extensive and rigorous distributional analysis remains unclear. Further research is needed to increase our understanding of the distribution of both costs and benefits and to determine whether the benefits of requiring routine provision of such information would outweigh the costs entailed.

http://reep.oxfordjournals.org/content/10/2/308.short
by Lisa A. Robinson*, James K. Hammitt† and Richard J. Zeckhauser‡

Review of Environmental Economics and Policy http://reep.oxfordjournals.org via Oxford Journals
Volume 10, Issue 2; Summer, 2016; Pages 308-328.

• Symposium: Distributional Considerations in Benefit-Cost Analysis

Collaboration Aims to Increase Sales of Energy-Efficient Products

The U.S. Environmental Protection Agency announced an innovative pilot program with Energy Star partners to encourage the sale of more efficient products for the home. The Energy Star Retail Products Platform seeks to establish a consistent model for utilities to incentivize retailers to sell and consumers to purchase more energy-efficient products.

... 

Appliances and other miscellaneous household electronics contribute an estimated 15-20 percent of residential energy use. Energy efficiency programs run by utilities and other organizations have traditionally offered consumer rebates to incentivize the purchase of more Energy Star-certified options. With the success of these programs, the per-unit energy savings opportunity has decreased, so utilities and retailers have explored new approaches to further incentivize the purchase of energy-efficient products. The ESRPP provides financial incentives directly from utilities to retailers to sell the most energy-efficient products to their customers. The ESRPP is designed to capture remaining, hard-to-reach energy savings and promises increasing energy savings and reduced costs over time.

A nationwide collaboration, the ESRPP gives retailers, utilities, manufacturers and other participants a more efficient platform to deliver Energy Star products. The ESRPP allows these partners to leverage each other’s resources and shared objectives, avoid duplication of effort and redundancy across neighboring service territories, and streamline operations. A typical household equipped with Energy Star certified products can reduce emissions by about 72,000 pounds of CO2 and save about $8,200 on utility bills over the life of the products. ESRPP offers EPA and its partners a systematic and cost-effective way to continuously expand the sale and use of Energy Star certified products to deliver lasting economic and environmental benefits to the consumer.

In this first pilot year, nine program sponsors representing 12 states and almost 15 percent of the U.S. are participating in the ESRPP. Energy Star certified models in five product categories are being promoted by program sponsor-labeled signage in almost 700 stores. By the end of 2017, the program is expected to expand to serve approximately 30 percent of the U.S. population through increased program sponsor and retailer participation. In the future, the ESRPP is expected to offer a gateway for energy efficiency programs to capture energy savings in the growing "miscellaneous/plug load" product categories at a significantly lower cost than current programs incur. Currently, each year, utilities and others invest more than $7.6 billion on energy efficiency programs, saving nearly 25,850 MWh of electricity. These savings prevent an estimated two million metric tons of annual greenhouse gas emissions and are equivalent to the electricity used by more than 290,000 homes.

Energy Star is the simple choice for energy efficiency. For nearly 25 years, people across America have looked to EPA’s Energy Star program for guidance on how to save energy, save money, and protect the environment. Behind each blue label is a product, building, or home that is independently certified to use less energy and cause fewer of the emissions that contribute to climate change. Today, Energy Star is the most widely recognized symbol for energy efficiency in the world. Since 1992, Energy Star has helped families and businesses save $362 billion on utility bills, while reducing greenhouse gas emissions by more than 2.4 billion metric tons.

https://www.epa.gov/newsreleases/energy-star-collaboration-aims-increase-sales-energy-efficient-products

U.S. Environmental Protection Agency www.EPA.gov

Press Release dated October 24, 2016

Reinvigorating Ohio’s Clean Energy Standards Could Save $5B by 2030

Ohio policymakers are at a crossroads. They can create jobs, grow the economy, cut pollution, and save customers money by rebuilding the state’s renewable and energy efficiency policies, or they can continue to let Ohio fall behind in the clean energy economy.

A little background: In 2014, the Ohio Legislature placed a two-year freeze on the state’s energy efficiency and renewable energy standards as a result of political pressure from Ohio’s largest power company, FirstEnergy, among others. The standards required electric utilities to generate 12.5 percent of electricity sales from renewable sources, as well as reduce energy consumption 22 percent by 2025 through efficiency programs. Since the freeze, Ohio has lost millions of dollars in energy investment and jobs, and lags behind nearly every other state in percentage of renewable energy generated.

Now that the two years are almost up, it’s time for Ohio to decide how to move forward – if at all – on its clean energy standards. Fortunately, according to a new report from Environmental Defense Fund and The Nature Conservancy, there are at least three achievable routes to reinstate the renewable and efficiency standards – each of which would provide substantial economic and health benefits to the state at a value of $3 to $5 billion by 2030.

...

To evaluate the most financially beneficial mix of clean energy resources, the report, Grounds for Optimism: Options for Empowering Ohio’s Energy Market, produced three forecasts of the state’s electricity market. The scenarios include an Accelerated Efficiency case, an Intermediate Pathway that provides a balanced mix of renewables and efficiency, and an Expanded Renewables case. These scenarios are compared against a baseline that models an extended freeze of Ohio’s renewable and energy-efficiency standards.

All three scenarios are based on clear trends and achievable targets within the state’s growing clean energy industry. Furthermore, each would enable Ohio to meet the goals of the Clean Power Plan, the nation’s first-ever limit on carbon pollution from power plants.

The forecasts show the renewable energy and energy efficiency industries in Ohio are expected to:

• Create between 82,300 and 136,000 new jobs in Ohio, with the wind industry serving as one of the largest contributors.

• Enhance Ohio’s GDP by $6.7 billion to $10.7 billion by 2030,

• Provide between $28.8 million and $50.9 million in savings for Ohio electricity customers by 2030, and

• Provide between $3 and $5 billion in net benefits by 2030.

Moreover, how we generate electricity significantly impacts public health. Currently, “Ohio’s coal-heavy generating fleet creates billions in public health costs that are borne by citizens,” according to the report. By increasing renewable energy and efficiency, Ohioans would avoid asthma attacks, heart attacks, pulmonary issues, and other illnesses that would otherwise occur under the baseline. And public health benefits grow over time: The value would exceed $1 billion every year from 2030 onward in all three scenarios.

...

Ohio Governor John Kasich recently attended The Texas Tribune festival, where he was asked about his stance on the Buckeye State’s clean energy standards. Although he feels the original policies were overly ambitious, he was very clear on his message to the Ohio legislature, stating, “If you try to kill the standards […], I’ll veto the bill and we’ll go to the higher standards. I’m committed to it.”

In other words, Governor Kasich is determined to see Ohio thaw the freeze and begin to rebuild its clean energy prowess.

If the legislature is wondering how to go about doing so, this new report from The Nature Conservancy and Environmental Defense Fund can serve as a roadmap to getting the Buckeye State back on track. It clearly lays out three paths for creating jobs and growing the state’s economy, while lowering electricity bills and healthcare costs for Ohioans in the long run. The analysis offers flexibility and an array of options, all of which are far superior to letting the freeze stand, or replacing the standards with a toothless goal. The clean energy choices are there – take your pick, Ohio.

Download the full report here and the factsheet here.

http://tinyurl.com/zrrxlzc

Environmental Defense Fund (EDF) www.EDF.org

October 24, 2016

The Fiscal Cost of Hurricanes: Disaster Aid Versus Social Insurance

Abstract:

Little is known about the fiscal costs of natural disasters, especially regarding social safety nets that do not specifically target extreme weather events. This paper shows that US hurricanes lead to substantial increases in non-disaster government transfers, such as unemployment insurance and public medical payments, in affected counties in the decade after a hurricane. The present value of this increase significantly exceeds that of direct disaster aid. This implies, among other things, that the fiscal costs of natural disasters have been significantly underestimated and that victims in developed countries are better insured against them than previously thought.

...

[The study] estimates that on average, $780-$1,150 of non-disaster government payments are awarded to victims of hurricanes in the ten years after an event, in addition to $155-$160 of disaster-related aid. Deryugina also finds that non-disaster payments increase by 1.3 to 3.9 percent after a hurricane (relative to a mean of $4,700 per person) and continue to increase post-hurricane.

In the study, Deryugina uses a differences-in-differences framework to compare US counties that experienced hurricanes between 1979 and 2002 with unaffected neighboring counties for ten years before and after each hurricane. Government payments were categorized as following: medical spending (excluding Medicare), disability insurance (SSDI), Social Security, and Medicare, with all four categories experiencing increased payments in the years following a hurricane. Medicare and other medical spending experienced the largest relative increases; increases in SSDI and Social Security spending were marginally significant, with effects becoming statistically insignificant two and seven and a half years post-hurricane. Government payments increased as hurricane intensity increased, with Category 3 and above hurricanes garnering the largest payments. However, statistically significant increases in government payments were also observed after weaker Category 1 and 2 hurricanes.

...

Considering that $19 billion was spent on hurricane-related disaster aid and $67.7 billion on other disasters through formal federal disaster declarations between 1979 and 2002, this omission is significant. Budgeting for disaster aid and recovery should reflect these increased costs. 

by Tatyana Deryugina

National Bureau of Economic Research (NBER) www.NBER.org

NBER Working Paper No. 22272; Issued in May 2016

also

Hannah Bent" The Financial Impact of Natural Disasters: Beyond Disaster Aid" October 12, 2016 Chicago Policy Review http://tinyurl.com/h64m235

IEA raises its five-year renewable growth forecast as 2015 marks record year

The International Energy Agency said today that it was significantly increasing its five-year growth forecast for renewables thanks to strong policy support in key countries and sharp cost reductions. Renewables have surpassed coal last year to become the largest source of installed power capacity in the world.

The latest edition of the IEA’s Medium-Term Renewable Market Report now sees renewables growing 13% more between 2015 and 2021 than it did in last year’s forecast, due mostly to stronger policy backing in the United States, China, India and Mexico. Over the forecast period, costs are expected to drop by a quarter in solar PV and 15 percent for onshore wind.

Last year marked a turning point for renewables. Led by wind and solar, renewables represented more than half the new power capacity around the world, reaching a record 153 Gigawatt (GW), 15% more than the previous year. Most of these gains were driven by record-level wind additions of 66 GW and solar PV additions of 49 GW.  

About half a million solar panels were installed every day around the world last year. In China, which accounted for about half the wind additions and 40% of all renewable capacity increases, two wind turbines were installed every hour in 2015.

https://en.wikipedia.org/wiki/Solar_power_in_Spain#/media/File:PS20andPS10.jpg

“We are witnessing a transformation of global power markets led by renewables and, as is the case with other fields, the center of gravity for renewable growth is moving to emerging markets,” said Dr Fatih Birol, the IEA’s executive director.

‌‌There are many factors behind this remarkable achievement: more competition, enhanced policy support in key markets, and technology improvements. While climate change mitigation is a powerful driver for renewables, it is not the only one. In many countries, cutting deadly air pollution and diversifying energy supplies to improve energy security play an equally strong role in growing low-carbon energy sources, especially in emerging Asia.

Over the next five years, renewables will remain the fastest-growing source of electricity generation, with their share growing to 28% in 2021 from 23% in 2015.

Renewables are expected to cover more than 60% of the increase in world electricity generation over the medium term, rapidly closing the gap with coal. Generation from renewables is expected to exceed 7600 TWh by 2021 -- equivalent to the total electricity generation of the United States and the European Union put together today.

But while 2015 was an exceptional year, there are still grounds for caution. Policy uncertainty persists in too many countries, slowing down the pace of investments. Rapid progress in variable renewables such as wind and solar PV is also exacerbating system integration issues in a number of markets; and the cost of financing remains a barrier in many developing countries. And finally, progress in renewable growth in the heat and transport sectors remains slow and needs significantly stronger policy efforts.

The IEA also sees a two-speed world for renewable electricity over the next five years. While Asia takes the lead in renewable growth, this only covers a portion of the region’s fast-paced rise in electricity demand. China alone is responsible for 40% of global renewable power growth, but that represents only half of the country’s electricity demand increase.

This is in sharp contrast with the European Union, Japan and the United States where additional renewable generation will outpace electricity demand growth between 2015 and 2021.

The IEA report identifies a number of policy and market frameworks that would boost renewable capacity growth by almost 30% in the next five years, leading to an annual market of around 200 GW by 2020. This accelerated growth would put the world on a firmer path to meeting long-term climate goals.

“I am pleased to see that last year was one of records for renewables and that our projections for growth over the next five years are more optimistic,” said Dr. Birol. “However, even these higher expectations remain modest compared with the huge untapped potential of renewables. The IEA will be working with governments around the world to maximize the deployment of renewables in coming years.”

View the slides from Dr Birol's launch presentation in Singapore

http://tinyurl.com/h3nlufe

International Energy Agency www.IEA.org

October 25, 2016