The Business Case for Green

March 1, 2008
Editor's note: Following is the second in a series of excerpts from The Green Building Revolution, the latest book by Jerry Yudelson, PE, MBA, LEED AP,

Editor's note: Following is the second in a series of excerpts from “The Green Building Revolution,” the latest book by Jerry Yudelson, PE, MBA, LEED AP, who will serve as keynote speaker for HPAC Engineering's fifth annual Engineering Green Buildings (EGB) Conference and Expo Oct. 21 and 22 at Mandalay Bay Resort and Casino in Las Vegas. To register, visit Those who register by April 15 will receive a complimentary copy of “The Green Building Revolution.”

The business case for green development is based on a framework of benefits: economic, productivity, risk management, health, public relations and marketing, recruitment and retention, and funding. (The “Business-Case Benefits” sidebar) presents an outline useful for understanding the wide-ranging benefits of green buildings. …


Reduced operating costs

With the real price of oil near record highs, natural-gas prices at elevated levels and peak-period (typically summer air-conditioning times) electricity prices rising steadily in many metropolitan areas, energy-efficient buildings make good business sense. Even in “triple-net” leases (the most common type), in which tenants pay all operating costs, landlords want to offer tenants the most economical space for their money. For a small additional investment in capital cost, green buildings will save on energy operating costs for years to come.

Many green buildings are designed to use 25- to 40-percent less energy than current codes require; some buildings achieve even higher efficiency levels. Translated to an operating cost of $1.60 to $2.50 per square foot for electricity (the most common energy source for building), this energy savings could reduce utility operating costs by 40 cents to $1 per square foot per year. Often, these savings are achieved for an added investment of just $1 to $3 per square foot. With building costs reaching $150 to $300 per square foot, many developers and building owners are seeing that it is a wise business decision to invest 1 to 2 percent of capital cost to secure long-term savings, particularly with a payback of less than three years. In an 80,000-sq-ft building, the owner's savings translates into $32,000 to $80,000 per year, year after year, at today's prices.


Reduced maintenance costs

More than 120 studies have documented that energy-saving buildings that are commissioned properly at 50 cents to $1 per square foot of initial cost (equal to one year of savings) show additional operational savings of 10 to 15 percent in energy costs. They also tend to be much easier to operate and maintain.

By conducting comprehensive functional testing of all energy-using systems before occupancy, it is often possible to have a smoother-running building for years because potential problems are fixed in advance. A 2006 review of these studies by Lawrence Berkeley National Laboratory showed that the payback from building commissioning in terms of energy savings alone was about four years, while the payback fell to about one year when other benefits were considered, such as fewer callbacks to address thermal-comfort problems.

Increased building value

Increased annual energy savings also create higher building values. Imagine a building that saves $37,500 per year in energy costs vs. a comparable building built to code. (This savings might result from saving only 50 cents per square foot per year for a 75,000-sq-ft building.) At capitalization rates of 6 percent, typical today in commercial real estate, green-building standards would add $625,000 ($8.33 per square foot) to the value of the building. For a small upfront investment, an owner can reap benefits that typically offer a payback of three years or less and a rate of return exceeding 20 percent.

Tax benefits

Many states have begun to offer tax benefits for green buildings. Some, such as Oregon and New York, offer state tax credits, while others, such as Nevada, offer property- and sales-tax abatements. The federal government offers tax credits as well. Oregon's credit varies based on building area and Leadership in Energy and Environmental Design- (LEED-) certification level.

At the Platinum level, a 100,000-sq-ft Oregon building can expect to receive a net-present-value tax credit of about $2 per square foot. This credit can be transferred from public or nonprofit entities to private companies, such as contractors or benefactors, making it even more beneficial than one that applies only to private owners.

New York's tax credit allows builders who meet energy goals and use environmentally preferable materials to claim up to $3.75 per square foot for interior work and $7.50 per square foot for exterior work against their state tax bill. To qualify for the credit, a building must be certified by a licensed architect or engineer and must meet specific requirements for energy use, materials selection, indoor-air quality, waste disposal, and water use. In new buildings, this means energy use cannot exceed 65 percent of use permitted under the New York energy code; in rehabilitated buildings, energy use cannot exceed 75 percent.

The Nevada legislature passed a law in 2005 offering a property-tax abatement of up to 50 percent for up to 10 years to private development projects achieving a LEED Silver certification. Assuming the property tax is 1 percent of value, this could be worth as much as 5 percent of the building cost, typically far more than the actual cost of achieving LEED Silver on a large project. As a result, a large number of Nevada projects are pursuing LEED certification, including the world's largest private development project, the $7 billion, 17-million-sq-ft Project CityCenter in Las Vegas. The Nevada law also provides for sales-tax abatement for green materials used in LEED Silver certified buildings. (This law was amended in 2007 to reduce the tax abatement to 35 percent.)

The 2005 federal Energy Policy Act offers two major tax incentives for aspects of green buildings: a tax credit of 30 percent on both solar thermal and electric systems and a tax deduction of up to $1.80 per square foot for projects that reduce energy use for lighting, HVAC, and water-heating systems by 50 percent compared with a 2001 baseline standard. In the case of government projects, the tax deduction may be taken by the design team leader, typically the architect.

Copyright © 2008 by Island Press. Excerpted by permission of Island Press. All rights reserved. No part of the preceding excerpt may be reproduced or reprinted without permission in writing from the publisher.

Read more Engineering Green Buildings columns.

Jerry Yudelson, PE, MBA, LEED AP, is principal of Yudelson Associates. Chair of the 2008 Greenbuild International Conference and Expo, he has trained more than 3,300 building-industry professionals on the LEED rating system. He is the author of six books and many research studies, white papers, and articles on green buildings. He can be contacted through his Website,

Business-Case Benefits

  1. Savings on energy and water, typically 30 to 50 percent, along with a reduced carbon footprint from energy savings.

  2. Maintenance-cost reductions from commissioning and other measures to improve and ensure proper systems integration and performance.

  3. Increased value from higher net operating income and better public relations.

  4. Tax benefits for specific green-building investments.

  5. More competitive real-estate holdings for private-sector owners over the long run.

  6. Productivity improvements, typically 3 to 5 percent.

  7. Health benefits, reduced absenteeism, typically 5 percent or more.

  8. Risk-management benefits, including faster lease-up and sales and lower employee exposure to odors or the effects of irritating or toxic chemicals in building materials.

  9. Marketing benefits, especially for developers and consumer-products companies.

  10. Public-relations benefits, especially for developers and public agencies.

  11. Easier recruitment and retention of key employees, higher morale.

  12. Fund-raising incentives for colleges and nonprofits.

  13. Increased availability of debt and equity funding for developers.

  14. Demonstration of commitment to sustainability and environmental stewardship, shared values with key stakeholders.