The Price of Innovation: An Analysis of the Marginal Cost of Green Buildings

Energy efficiency plays an important role in the reduction of the carbon externality from buildings, but the adoption of green construction practices is slow. Economic analyses of green building have thus far ignored input costs, and this paper finds that the average marginal cost of green-labeled construction projects is zero. 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 insight into market frictions that may represent barriers to the adoption of otherwise economically rational green building construction practices.