South-Western College Publishing - Economics  
It's Getting Easier to Be Green - and More Profitable, Too
Subject Environmentally Responsible Buildings are Much More Popular These Days
Topic Supply and Demand; Economics and the Environment
Key Words

Sustainable Development; Recycling; Costs; Efficiency; Energy

News Story

More and more builders in the Boston area are efficiently using natural resources and energy in mind. So-called "green" projects have gained encouragement not only by the public sector, but by private firms and individuals as well.

Massachusetts Institute of Technology is getting ready to open a $300 million, 713,000 square-foot classroom building that maximizes use of sunlight, including an auditorium with a sliding roof and skylight. Property owners in general are eager to create buildings that address environmental issues, and such concern is creating a new breed of designers.

Creation of "green" buildings is more costly for a number of reasons. The engineers have to be specially trained, and the designers have to be educated about the options available. These buildings try to maximize the use of energy and water, use recycled material and sunlight as much as possible, and in general use sustainably produced materials in production. To qualify as a "green" building, owners must register with the US Green Building Council, a nonprofit group created for this specific purpose. The Council issues its LEEDS ratings (leadership in energy and environmental design) for a variety of projects at various levels, but to date has only issued five of its highest ratings, and about 100 overall since 2000. California has 13 green buildings currently, leading the nation, and Massachusetts has 6.

But paying attention to the environment can be expensive: These buildings cost anywhere from 1 to 16% more than traditionally constructed buildings. However, even though the construction costs are higher, owners of these green buildings say that their long-term costs are lower, because it is anywhere from 20-40% cheaper to operate the sites. For example, Genzyme, a company constructing a green building in Boston, argues that its building will use up to 38% less energy and 32% less water than a traditionally constructed building, and will bring sunlight in to as much as 75% of employee spaces, reducing the need for artificial light. The company expects its long-term profitability to actually rise by paying attention to the environment.

(Updated July, 2004)

Questions
1.

Illustrate using supply and demand curves the effect being described in this article on the price of efficient buildings?

2. What will be the impact on the salaries of those engineers qualified to create environmentally responsible buildings? Why? Illustrate with supply/demand curves.
3. In what ways do buildings like the ones described internalize external costs on the environment? Explain with examples from the summary.
Source Susan Diesenhouse. "'Green' Buildings Emerge in Boston." The New York Times. 28 April 2004.

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