Local Economic Empowerment Development Strategy Certification
Judging the value of anything on the basis of its carbon-footprint or toxic byproducts as much as on its inherent utility may well help to re-define the provisioning of public goods. After all, businesses survive and prosper by meeting consumer needs and preferences. Traditional welfare economics, though, preaches that problems like global warming are the direct result of market failures that only government intervention can reverse. Yet, business may nonetheless play a major role provided that it convinces policymakers and consumers alike of its environmental bona fides. Industry self regulation in general and third-party accreditation schemes like the construction industry's LEED certification program in particular may well do exactly that.
Keywords Business Case; Eco-Efficiency; Industrial Organization Theory; Information Asymmetries; LEED; Product Differentiation; Public Goods; Return On Investment (ROI); Social Dividend; Theory of the Firm; Voluntary Self-Regulation
Economics: LEEDs CertificationOverview
The not-for-profit U.S. Green Building Council (USGBC) has devised a multidimensional rating system that judges the proposed Leadership in Energy and Environmental Design (LEED) which promotes construction that is environmentally responsible, profitable and, in the words of its mission-statement, creates healthy places to live and work. Its worthwhile goal aside, of interest to economists is the way the Council is going about this. LEED certification promotes the voluntary private-provisioning of public goods via non-enforceable industry self-regulation. Builders willfully submit the details of proposed projects to a third-party trade association which reviews the specs and publically vouches for the project's environmental bona fides. The award of a LEED certification first and foremost objectively evaluates the energy efficiency and eco-friendliness of a developer's latest project, elements that investors and tenants would otherwise have to take entirely on faith. The working definitions and standards of measurement applied benefit the industry, too, by technically 'raising the bar' participants aspire to and by increasing public awareness of and confidence in 'green' construction. Indeed, LEED certification may well become a widely accepted brand in itself, denoting environmental 'added value' to buyers. This, in turn, fosters a viable private-sector marketplace for green products.
A proposed building's design can be awarded, in ascending order, a LEED rating of certified, silver, gold, or platinum depending upon a composite score given to it based upon its overall energy efficiency, conservation of materials and resources during construction, indoor environmental quality afterwards, and preservation and safeguarding of fresh water supplies throughout ("Greening construction," 2003). The exact criteria reviewers may apply differ slightly depending on the proposed building's type. In fact, a particular project is eligible for one of six LEED certifications: New Construction and Major Renovations (LEED-NC), Existing Buildings (LEED-EB), Commercial Interiors (LEED-CI), Core and Shell (LEED-CS), Homes (LEED-H) and Neighborhood Development (LEED-ND). Reviewers thoroughly examine a proposed project's documentation (blueprints, site plans, materials-lists, etc.), evaluate these in light of established criteria and award points in a range of categories.
For example, the sustainability of the construction and post-construction site can earn an applicant for LEED-NC certification up to 14 points. A high score here rewards builders for their care in conserving the surrounding ecosystem during construction and restoring affected areas after. The planned building's energy efficiency and resulting lower carbon footprint, when finished, along with its other pollution control measures can receive a maximum score of 17 points. A full 15 points, meanwhile, will be awarded when builders reduce vapor-emitting volatile organic compounds in indoor paints, primers, sealants and pipe-joints to an absolute minimum. The use of recycled and environmentally friendly building materials on the one hand and landscaping on the other (to lower ambient temperatures) can earn a full 13 points, roof and groundwater collection systems to conserve water 5 points; and a project's innovative design another 5 points. A top composite score of 69 is thus achievable. To warrant a platinum LEED-NC certification, the highest available, a project's composite score must be 52 or greater; a score of between 39 and 51, alternatively, merits a gold certification. A silver certificate is granted to any building with a composite score of between 33 and 38 points. A building with a score of less than 33 but greater than 25, lastly, wins LEED-NC certification (Dolash, 2005).Applications
A passing familiarity with welfare economics, industrial organization theory, the neoclassical theory of the firm and marketing strategy are all necessary perquisites to adequately explain why, in principle at least, LEED certification should work. That's because it's premised on the idea that non-enforceable, standards-based industry self-regulation can turn the voluntary provisioning of public goods into a profitable enterprise. It's a novel construct, and its concise summation here gives us an inkling of the breadth of ideas it draws upon. Ideas that answer two related questions central to the business case for LEED certification: Why do industries of their own volition impose rules on themselves and why, so far at least, have they not shown much inclination to go green for green's sake?Industry Self Regulation
An industry regulates itself either to lessen a threat or to leverage an opportunity. By policing itself, an industry pre-empts potentially severer forms of government regulation; inspiring greater public confidence in its products in the process. The fiercest of rivals, meanwhile, will find common cause if their mutual interests are served either by enlarging an industry's revenue base or reducing its cost structure (Lewis, 2002). Naturally, individual firms want nothing more than to be left alone, to be free to compete in the marketplace as they see fit. Governments looking to stimulate economic growth are of like mind in this respect. Excessive regulation stifles innovation, increases the costs of doing business, and blunts a firm's long-term competitiveness.
Any government that becomes too lax in safeguarding the well-being of its citizenry loses legitimacy. Unfortunately, moral persuasion alone will never keep greed entirely at bay; given the opportunity, the...
(The entire section is 2885 words.)