Building Green Helps the Bottom Line

A primary driver of—and deterrent to—green building is “green.” Money. As in most other ventures, costs and benefits are key factors in the decision to build sustainable, high-performance buildings.

For its “2016 Survey on HVAC&R Industry Trends,” ASHRAE Journal received responses to a variety of questions from representatives of several hundred companies in the buildings industry. Among the questions was “Are your customers willing to pay more for efficiency?” Nearly 85% of respondents said customers “sometimes” or “often” are willing to pay more. Only around 7% of respondents said their customers are “rarely” willing to pay more.

To follow up, it was asked “How has this changed in the last five years?” roughly three-fourths of respondents said that this has changed “some” or “a lot” recently.

Undoubtedly, part of this increased focus on sustainability is charitable concern about conserving energy resources and protecting the environment. However, as stated earlier, when having conversations about building or buying for sustainability, money talks.

Global green building is expected to double by 2018, according to the recent World Green Building Trends Study by Dodge Data & Analytics and United Technologies Corp. The report found that the percentage of firms in the U.S. expecting to have more than 60% of their projects certified is expected to grow from 18%, as of the last World Green Building Trends Study in 2013, to 37%.

Businesses reported that they get a lot of bottom-line benefit from building green. Respondents said that green buildings bring lower operating costs, such as reduced energy costs and total lifecycle costs. Also, respondents reported a median increase of 7% in the value of their green buildings compared to traditional buildings.

More than one-third (35%) of respondents said government environmental regulations was the primary trigger for them to build green. However, the regulations are as much, or more so “carrot” as they are “stick.”

The federal government and local municipalities have a variety of incentives to lead building owners and homeowners to act in ways that benefit society as a whole while yielding financial benefits for themselves. It is the economic and ethical philosophy of “enlightened self-interest.”

Such incentives include long term, low interest rate financing, or even outright grants for investing in sustainable energy or systems.

One such incentive is Section 179D. Passed as part of the “Consolidated Appropriations Act of 2015,” last December, Section 179D is a provision that reinstated the Energy-Efficient Commercial Buildings Deduction of the tax code, (which had expired on Dec. 31, 2014) through Dec. 31, 2016. Political publication The Hill called the measure the “best tax provision you've never heard of.”

World Green Building Trends Study

Dodge Data & Analytics

The measure incentivizes builders who exceed certain standards for energy efficiency in new construction and renovations. The more energy-efficient the building is, the bigger the deduction (up to $1.80 per square foot). The statute is based on efficiency of the building envelope, HVAC systems and lighting in buildings. It is exemplary of enlightened self-interest. Says The Hill’s article, “Congress is, in short, incentivizing building owners who want to lower operating costs and increase operating profits.”

A slightly similar measure is the Energy Investment Tax Credit (ITC). This incentive provides a 30% federal tax credit for residential and commercial solar systems. Homeowners may claim the federal tax credit on their personal income taxes for residential solar installations. If a business installs a solar system, it can claim the tax credit.

There are other tax credits for residential energy efficiency, as well. For example, homeowners can claim 10% of cost up to $500, or a specific amount from $50 to $300 for energy-efficiency improvements made to their principal, existing (not new construction) residences. Systems covered by the credit include biomass stoves, air-source heat pumps; central air conditioning; gas, propane, or oil hot water boilers; gas, propane or oil furnaces and fans; insulation; water heaters (non-solar); and windows, doors and skylights.

A more lucrative tax credit (of 30% of cost with no upper limit) is available to homeowners who add more robust energy-efficiency measures to their homes, including geothermal heat pumps, small wind turbines (residential), and solar energy systems.

While cost is a factor in building green for both commercial and residential building owners, concerns might actually be moot. A 2007 study by Davis Langdon found “no significant difference between the average cost for green buildings as compared to non-green buildings.” Slightly more recently, Greg Kats wrote in his book, Greening Our Built World: Costs, Benefits, and Strategies, that the median cost increase to “build green” was 1.4%. “More than three-quarters of the buildings in the data set have green premiums between 0% and 4%; the largest concentration is between 0% and 1%.”

Said Donna Laquidara-Carr, industry insights research director at Dodge Data & Analytics, in an interview with trade publication Environmental Leader, “We have certainly found in our green research over the years that the concern about and expected increase in cost reported often exceeds that demonstrated by studies of actual cost.”