Green Building Councils: Policy Instrument Or Fashion?

1
Green Building Councils Policy Instrument Or
Fashion?
Gunther Maier, WU Wien Sabine Sedlacek, MODUL
University
2
Introduction

• Greening the construction industry has become
  big business recently
• WGBC lists 60 organizations, 18 in Europe
• 20 established GBC
• 3 emerging GBC
• 23 prospective GBC
• 14 associated group
• Three areas of activity
• information, promotion, awareness building
• lobbying for standards and policies
• develop, manage, operate a rating system

3
Introduction

• WGBC lists 9 rating systems
• Examples BREEAM, Green Star, CASBEE, LEED, DGNB
• standard procedure
• project is registered for assessment
• certified assessor evaluates based on standards
• organization verifies assessment and awards
  certificate
• GBCs are interesting from governance perspective
• typically NGOs
• perform a public function
• financed by the addressee of their policy
  (membership, certification fee)

4
Introduction

• Is this structure sustainable?
• Do GBCs fulfill a function that is economically
  valuable?
• What is this function? Do all GBCs fulfill it?
• Structure
• Where is the problem for GBCs to solve?
• conventional view
• economic view
• GBCs as element of economic governance
• Empirical analysis
• Conclusions

5
The problem to solve

• Conventional view Vicious circle of blame
  (Cadman, 2000, Keeping, 2000, Cadman, 2007,
  Hartenberger, 2008, Ratcliffe et al., 2009,
  Robinson, no year).

Constructors
Occupiers
Investors
Developers
6
The problem to solve

• Basic argument
• potential demand exists, but market is too
  complex or actors are too dumb
• information problem
• One positive example will reveal the opportunity
• Best GBC strategy Promotion and awareness
  building
• Problems with this argument
• no reference to characteristics of real estate
  market
• why certification of individual buildings?
• why should business finance GBC activities?

7
The problem to solve

• Economic view Prisoners dilemma trap
• quality uncertainty in all relations
• potential buyer (e.g. investor) is uncertain
  about the quality he/she gets
• supplier (e.g. developer) cannot proof the
  quality of the building
• buyer is not willing to pay the full premium for
  higher quality
• supplier has a strong incentive for cheating
• although both market participants would benefit
  from higher quality, it is not produced and
  therefore not traded ? trapped in a prisoners
  dilemma

8
The problem to solve

• information and awareness or the market alone
  cannot solve this problem
• in the prisoners dilemma trap no supplier
  actually cheats the expectation of cheating is
  enough
• prisoners dilemma in one of the relations is
  sufficient to block the whole circle

9
GBCs and economic governance

• Governance may be provided by private actors
• governance and government should not be regarded
  as almost synonyms (Dixit, 2009)
• Prisoners dilemma trap creates a need for
  governance
• Two possible approaches
• create a high enough penalty for cheating actors
• establish a mechanism for more accurate and
  reliable information about the quality of a
  building

10
GBCs and economic governance

• Second approach falls under enforcement of
  contracts by third party institutions.
• Third-party institutions provide governance by
  outsiders who are not direct parties to this
  class of transaction (Dixit, 2009).
• certification of buildings
• increases the share of sustainable buildings and
  reduces the probability of cheating
• both effects increase the investors expected
  profit ? investor is willing to pay more for such
  a building ? higher incentive for construction of
  it

11
GBCs and economic governance

• When GBCs reliably certify the quality of
  buildings, they help to resolve the prisoners
  dilemma trap
• both actors benefit from this directly
• other actors benefit indirectly through the side
  effect on the market
• GBCs in this case provide a valuable service to
  the whole market
• honesty of these third parties is not automatic
  (Dixit, 2009)
• own interests of GBCs need to be compatible with
  governance function

12
GBCs and economic governance

• valuable service is tied to certification
• reputation and honesty of the organization
• certification has to be selective to perform the
  function
• certification has to be wide enough to allow for
  enough applications to develop the reputation

13
Empirical analysis

• To what extent do GBCs fulfill these functions?
• Web-based survey of GBCs from the WGBC directory
• 26 responses (some incomplete) 12 Europe (9 CEE
  countries), 6 Americas/Caribbean, 7 Asia Pacific,
  3 Africa

14
empirical analysis
Romania (Europe, CEE) Albania (Europe,
CEE) Australia (Asia/Pacific) Bulgaria
(Europe, CEE) Colombia (Americas/Caribbean)
Czech Republic (Europe, CEE) Dominican
Republic (Americas/Caribbean) Georgia (Europe,
CEE) Hong Kong (Asia/Pacific) Israel
(Asia/Pacific) Italy (Europe)
Japan (Asia/Pacific) Mauritius (Africa)
Mexico (Americas/Caribbean)
Morocco (Africa) New Zealand (Asia/Pacific)
Paraguay (Americas/Caribbean) Peru
(Americas/Caribbean) Poland (Europe,
CEE) Qatar (Asia/Pacific)
South Africa (Africa) Turkey (Europe, CEE)
United Emirates (Asia/Pacific) Croatia
(Europe, CEE) France (Europe) Spain
(Europe) Vietnam (Asia/Pacific)
15
empirical analysis
16
empirical analysis
Membership status Activities Activities
Established GBCs (n5) Established GBCs (n5) Established GBCs (n5)
- development and operation of rating tools (3) - certification of projects (3) - rating tool development (3) - to improve the certification system (3) - marketing (1) - research - conferences (1) - attract new members (1) - networking (1) - education courses (1) - advocacy
Emerging GBCs (n3) Emerging GBCs (n3) Emerging GBCs (n3)
- adaptation of the certification system (3) - working with 'certification board' and 'materials board' (3) - communication with members, other councils and international resources (1) - PR (1) - sponsorship, membership, communication, fund raising (1) - website development/ideas (1)
Prospective GBCs (n5) Prospective GBCs (n5) Prospective GBCs (n5)
- networking (1) - reminding board members to do any tasks required as per last meeting (1) - review documents sent by members (1) -review any tasks completed, before circulation (1) - communication (1) - develop the marketing materials, prepare the legal paper work and all the others milestones for our status (1) - administration, registration of members, getting sponsorship, committee meeting, event organization, research and development (1) - strategic planning - committee coordination (1)
Associated Groups (n6) Associated Groups (n6) Associated Groups (n6)
- website development (1) - business plan development - email correspondence (1) - capacity building (1) - meetings with volunteers and potential members ( 1) - sustainable building competition development - engage participants (1) - training (1)
1 information, awareness, 2 lobbying and
policy, 3 certification activities
17
empirical analysis
type 1 type 2 type 3
established GBC 5 (45.5 55.6) 0 (0.0) 4 (36.4 44.4)
emerging GBC 4 (66.7) 0 (0.0) 2 (33.3)
prospective GBC 8 (88.9 100) 0 (0.0) 0 (0.0)
associated group 6 (75 100) 0 (0.0) 0 (0.0)
only more advanced GBCs engage in certification
activities cause/effect? Chi-square prob. 0.06
18
empirical analysis

• number of members
• large spread
• substantial numbers only in top categories
• Australia, South Africa, Italy, New Zealand

19
empirical analysis

• Importance of nine factors for mid-term goals (1
  high)
• marked differences
• related to certification
• adaptation of exist-ing system ratherthan
  developing own

20
empirical analysis

• Summary of empirical evidence
• too few cases for hypothesis testing
• results indicate the importance of certification
  system
• certification organizational status - of
  members
• no information yet about dynamic aspects
• anecdotal evidence from CEE countries supports
  these results

21
summary and conclusions

• theoretical argument
• prisoners dilemma trap
• GBCs need instruments to overcome this ?
  certification
• information awareness building is not
  sufficient as a service to industry and the
  market
• empirical evidence
• cannot (yet) proof the theoretical result
• does not contradict it
• certifying GBCs are organizationally more
  advanced and have larger numbers of members (and
  more resources)

22
summary and conclusions

• Research question are GBCs valuable governance
  institutions or a temporary fashion?
• GBCs can fulfill a valuable function
  (certification)
• Those who provide this service have a good chance
  to stay in business those who do not are
  likely to fade away over time (lack of support
  from industry, lack of resources, lack of
  publicity)
• a certification system is not a sufficient
  condition
• reputation, design of certification system,
  market size, form of organization