The price of innovation: An analysis of the marginal cost of green buildings

Andrea Chegut, Piet Eichholtz, Nils Kok

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Abstract

Energy efficiency plays an important role in reducing the carbon externality from buildings, but economic analyses of more efficient, green building have thus far ignored input costs. This paper finds that the average marginal cost of green-labeled construction projects is smaller than the value premiums documented in the literature. However, design fees, representing just a fraction of development costs but paid largely up-front, are significantly higher for green construction projects. These projects also take longer to complete. The results provide some insight into the market barriers and market failures that may explain the relatively slow adoption of otherwise economically rational green construction practices.
Original languageEnglish
Article number102248
Number of pages18
JournalJournal of Environmental Economics and Management
Volume98
DOIs
Publication statusPublished - Nov 2019

JEL classifications

  • q56 - "Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth"
  • r33 - Nonagricultural and Nonresidential Real Estate Markets
  • q55 - Environmental Economics: Technological Innovation
  • o31 - Innovation and Invention: Processes and Incentives

Keywords

  • Carbon externality
  • building codes
  • construction costs
  • energy efficiency
  • environmental innovation
  • technical change
  • ENERGY-EFFICIENCY
  • Construction costs
  • Environmental innovation
  • Technical change
  • Building codes
  • Energy efficiency
  • ECONOMICS
  • INVESTMENTS

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