Green Building Councils: Policy Instrument Or Fashion?

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

2. 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 FUßZEILE Introduction

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). Occupiers Constructors 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 investor’s 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 1 = information, awareness, 2 = lobbying and policy, 3 = certificationactivities

17. empirical analysis 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