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Energy Efficiency Premiums in Unlabeled Office Buildings

Open Access Article

Abstract:
Whether commercial real estate market participants effectively evaluate building energy efficiency characteristics in the absence of a green label has so far remained unaddressed in the literature. I estimate the energy efficiency premium in unlabeled office buildings by exploiting variation in mandatory building energy standard implementations as a result of the 1992 U.S. Energy Policy Act. A more stringent energy code leads to rent and price premiums of approximately 4 percent and 9 percent, respectively. Heterogeneity in the rent premium is also observed based on who pays the utility bills, as would be expected if market participants correctly evaluate energy conservation characteristics. The rent and price premiums are consistent with full capitalization of the energy savings from a more stringent standard.

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Energy Specializations: Energy Efficiency; Energy Efficiency – Residential and Commercial Buildings

JEL Codes: Q41: Energy: Demand and Supply; Prices, Q40: Energy: General

Keywords: Energy efficiency, Landlord-tenant, Energy standards, Real estate

DOI: 10.5547/01956574.38.4.mpap

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Published in Volume 38, Number 4 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

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