The Price of Innovation: An Analysis of the Marginal Cost of Green Building?

Energy efficiency plays an important role in reducing the carbon externality from buildings, but economic analyses of 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 insight into the relatively slow adoption of otherwise economically rational green construction practices.