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Market News

 November 24, 2007
Green buildings: Saving Money and the Environment!

 Vancouver, Canada (GLOBE-Net) - Two major reports have been released in recent weeks that suggest the green building movement is poised to become not only a major force in the global economy, but also a significant contributor to the reduction of greenhouse gas emissions. Canaccord Adams, the global capital markets group of Canaccord Capital Inc., released a report that suggests that we are at the beginning of what could be one of the most significant secular trends in the global building/construction market -- the "Green Building" (GB) movement. Sustainable Development Technology Canada unveiled a Business Case Analysis that shows how the design, construction and maintenance of Canada's commercial buildings, including office towers, hospitals and educational institutions, can reduce their energy and water consumption as well as waste production. Both reports herald a new age of green building, but there are obstacles still.

The Canaccord Adams report, entitled The Green Building Boom - Profiting from the Green Building movement, notes that green building historically has represented little more than an interesting "niche market" driven by forward-thinking architects and builders. However, it notes, accelerated demand and attractive tangible returns are opening up the mainstream building industry to green building practices.

The report's authors estimate that the US nonresidential green building market stands at approximately $8 billion, less than 10% of total construction dollars spent. GB practices constitute an even lower percentage within the residential building market. A combination of factors including skyrocketing energy prices, global environmental concerns and the recognition of enhanced productivity from worker well-being, coupled with declining costs of many GB technologies, are expected to drive GB's market share to more than 15% by 2010. In the longer term, Canaccord Adams concludes GB practices will become the norm in the construction industry.

The report released by Sustainable Development Technology Canada (SDTC) highlights technical and non-technical changes in the design, construction and maintenance of Canada's commercial buildings needed to reduce their energy utilization, water consumption and waste production. "The commercial building sector accounts for about 14% of secondary energy use in Canada and has seen energy-related GHG emissions increase 42% between 1990 and 2004," said Vicky J Sharpe, President and CEO of SDTC. "For this sector to change direction, we need a whole new approach to both the way we design, build and use commercial buildings as well as the regulations and policies that guide these activities."

Among the technical changes recommended, the report stresses the importance of improved system and equipment efficiencies as well as the development of integrated design processes. "Right now, too many of the key players in the development and operation of your typical commercial building work in isolation, focusing on their niche of expertise," said Dr. Sharpe. "We need real-world demonstrations that break the silos in the design process to align the concepts of liability and economic viability to comfort and usability."

The Canaccord Adams report notes that the case for green building is not a hard one to make: Green buildings provide numerous advantages over traditionally constructed buildings, including reduced material usage, lower energy and operating costs, and even higher property values in some cases. Although there remain higher upfront costs associated with building green, the long-term economic benefits are compelling given significantly lower operating costs.

In addition, the real estate community increasingly is recognizing the intangible benefits of green buildings, notes the report, which includes higher employee productivity, lower absenteeism, and increased employee retention. It cites a recent survey where 53% of architects, engineers, contractors, and building owners ranked lower operating costs as the number one reason for engaging in green building. A similar percentage (54%) of these respondents ranked energy costs as the number one environmental reason for engaging in green building. Finally, approximately 78% of the respondents ranked lowering lifecycle costs as a major reason for green building.

These observations stem in part from the realization that the costs versus benefits of green building must be assessed over much longer periods - i.e. by using a life-cycle approach. "Switching to a life-cycle approach is crucial if we are to truly achieve on-going sustainability in our commercial buildings," said Rick Whittaker, Vice President, Investments at SDTC. "Progress has been made over the last few years with the rise of LEED designation and other tools, but more work needs to be done to establish at-a-glance, meaningful measurements that give owners and tenants sustainability indicators to help in their decision-making."

The SDTC report stresses that the assessment of green buildings should shift to life-cycle-based performance standards that will enable certification of buildings on a life-cycle rather than on an as-built basis. The life-cycle approach examines the environment impact and cost of a building from construction through demolition.

A shift in the 'life-cycle' direction would favor the expanse of the green building market. Traditionally the cost of a development is based mainly on construction and does not take into account building operations and long term energy savings. By observing the life-span of a building, the true cost and savings of traditional building design versus green building design can be assessed.

However, measuring cost versus savings over the life time of a building is not a simple matter, which in part has contributed to hesitancy of builders to adopt GB approaches. Opinions vary considerably over the relative short term costs versus long term savings of green building. As noted in the Canaccord report, The World Business Council for Sustainable Development recently reported the results of a survey of over 1,400 people involved in the construction industry. Respondents estimated the additional cost of building green at 17% above conventional construction - more than triple the true cost difference of about 5%. Separately, a 2006 report done by Davis Langdon Adamson, a construction management services firm, found that when compared with traditional building projects of a similar size and purpose, buildings attempting LEED certification did not have significantly higher construction costs. In certain instances, in fact, the green building projects were actually less expensive due to resource-efficient strategies that allowed builders to downsize costly mechanical, electrical, and structural systems.

The US Green Building Council has carried out numerous studies on this issue and concludes the cost increment of reaching LEED certification is between 0% and 3%, while the cost of reaching the highest level of LEED (platinum) comes at a premium of less than 10%.

Misperceptions over the cost premiums are not the only factors affecting the pace of adoption of GB practices. The green building market is also quite new and many practitioners are inexperienced in terms of how to make the most of the movement toward sustainability in the trade. According to a report conducted by Equity Insurance (The Green Building Boom,), inexperience in the market lead to higher GB project costs due to the following errors: Failing to have a clear green design goal; Incorporating green design in mid-project; Lacking a single point of responsibility for the LEED process; Lacking experience with or knowledge of LEED; Lacking enough time to research materials and technologies options.

As the Canaccord study notes, the problem is compounded by the fact that attempting to properly value green buildings can be a challenging exercise because many of the long-term benefits, while real, are more qualitative in nature and have not traditionally been measured.

Notwithstanding potential energy or cost savings, the high initial capital costs, unverifiable claims about a particular green technology, and inexperience can still leave consumers unwilling to risk GB investment. For example, renewable energy systems may require special maintenance and monitoring considerations that building owners are not prepared to tackle.

The challenge then is to package the costs versus benefits issue in terms that are meaningful to consumers.

Mondial Energy Inc., based in Toronto, Ontario, has taken a unique approach to selling its green technology by the simple expedient of giving greater consumer confidence to builders. At no cost, Mondial will install a solar water heating system and to pay for the installation. The client and Mondial then establish an energy rate, much like the utility company, to be paid monthly. The plan allows building owners to pay for an expensive retrofit over the long term, while offsetting emissions and paying lower rates in the short term.

"Our customers put up nothing, lock in a volatile cost, and lower their environmental footprint, all at a locked-in cost that's displacing their existing fossil-fuel bill," says Mondial president and founder Alex Winch. By playing the role of an intermediary, Mondial is demonstrating the visible savings of GB to consumers in a manner they can easily comprehend.

Notwithstanding its slow growth to date, the green building industry is now worth $12-billion world wide and continues to grow. In Canada there are major development projects are underway which will serve only to accelerate the shift. British Columbia is home to some of the more innovative ventures in this area.

The Dockside Green Project in Victoria is a case in point. The development is based on a comprehensive environmental, social, and economic planning philosophy that has attracted attention from around the world. It will be a community for approximately 2,500 people, including residential, live/work, hotel, retail, office, light industrial uses and numerous public amenities to be built over the next decade. It will be the first LEED Platinum certified community in Canada and one of the first to be carbon-neutral.

The carbon neutral Olympic village planned in Vancouver as part of the 2010 Olympic Games is another example of a growing GB industry. The entire village will be built to LEED gold standards. Also planned for Vancouver is North America's first carbon-neutral office tower. Award winning Vancouver architect Peter Busby recently announced plans to develop a $225-million, 23-storey building to be situated adjacent to GM Place in downtown Vancouver. Geothermal energy will be used for heating and cooling. GM place, which receives 10% of its energy from fossil fuels, will receive an energy spin-off from the new tower. The breakthrough heat recovery and exchange design not only is expected to achieve LEED gold certification, it will also set a new standard in sustainable building design.

On Canada's other coast, similar innovations in green building heating and cooling systems design are being tested. Halifax Regional Municipality has announced construction of a sea water cooling and geothermal heat exchange system which will be used to cool buildings on the Dartmouth waterfront during the summer and to warm them in the winter. A key feature of the project is the first large-scale application of geothermal cold energy storage anywhere in the world. This innovative energy storage system features new design borehole heat exchangers that will use cold sea water from the adjacent harbour to chill the rock mass underground to meet peak cooling needs, eliminating the need for supplementary cooling systems that involve chemicals or energy-intensive air conditioning systems that typically use up to 25% of electricity consumed in the summer months.