Written by: Doug Noonan, Paul H. O’Neill Professor
Addressing climate change is not only about finding viable, effective policies, it’s also about recognizing and addressing the myriad barriers on our path to solutions. Political gridlock, special interests, and policy whiplash whenever a polarized electorate flips party control all hold us back from finding ways to renew and sustain economic growth, curb wasteful and unfair government regulation, and foster new opportunities and innovation.
The challenges facing our society are simply too complex, too dispersed, and too localized to rely on crude, top-down fixes. As such, climate challenges do not imply one particular policy response. In fact, we can often look to the private sector to find complementary approaches to policy.
Case in point: The great success story in green building. The building environment accounts for 40% of total carbon emissions. As a result, the industry needed a renovation. Greening our buildings is a massive opportunity to usher in innovation, economic growth, and better performance.
In the past few decades, we’ve gotten that. What were once state-of-the-art features in green building design have become the default. Quietly—to outsiders, at least—the building sector has transformed to normalize green building. The world’s most popular green building program—Leadership in Energy and Environmental Design (LEED)—has more than 100,000 registered projects worldwide. LEED standards have penetrated building codes, public policies, and standard building practices around the globe.
Big shares of commercial real estate in downtowns of major cities are now green. Market penetration will continue to grow as new construction replaces old. Even on IUPUI’s campus, the university has erected eight green buildings in just the past decade. Innovative designs like those in gold-certified University Hall reduce water use, make for a better work environment, and show our 21st-century leadership.
The rise of green buildings isn’t a story of draconian regulation, generous subsidy, or other “textbook” policies. It reflects how going green can improve building performance, translating to better employee productivity, tenant retention, labor recruitment, and access to financial capital. The marketplace recognizes these advantages with higher resale values and rental prices.
Yet the Green Building Movement’s success comes from combining these private benefits to owners, tenants, and workers with superior performance on environmental dimensions. And building owners can (profitably) market their lessened environmental footprint. It’s not about being “woke” or “virtue signaling”—it’s about profit.
A key to unlocking these benefits from green building comes from solving information problems. Simply put, it’s hard to know how green a building is until you’ve owned it or lived in it for a while. This lack of information discourages the costly up-front investment. Easily recognizable ecolabels like LEED help solve these problems by enabling builders to certify green, send a market signal, and facilitate industry learning about green building practices.
Crucially, LEED is an ecolabel invented and run by the private sector, where builders voluntarily adopt the standards. As a result, LEED has successfully fostered a race-to-the-top practice in the building sector. Ever-greater market penetration is coupled with ratcheting-up environmental standards with each iteration of LEED. Builders race to be greener. With every update to its rating system, LEED’s design offers builders flexibility while also nudging them to build even greener than they otherwise would.
We need more “races to the top.” One of the most valuable takeaways from LEED is how its lessons and learnings have spread. LEED-facilitated training of designers and visible pilot projects have demonstrated the benefits and practicality of green buildings. Demonstration projects share information, lower risks, and help “tool up” the industry.
Consider two other aspects of this story. The United States has been the global leader in the green building movement. And the public sector has helped pave the way through procurement policies, such as green government buildings. Both are true. While voluntary green building standards are pushing the limits of cost-effective building, building codes are quick to follow to enshrine them as standard practice. The private sector is the engine and the leader in building at the frontier of innovation, while the government provides underlying support and facilitates the diffusion.
A Green New Deal sounds promising—albeit Pollyanna. And I sympathize with rebellions against Washington dictating remedies for a (not so) imaginary crisis. But the best way forward lies on neither path. It borrows shrewdly from both. It leverages our most effective engine for producing change: markets. For some, mistrust of markets may be well-earned. Yet markets’ potency is exactly why we need them in our arsenal of solutions to societal problems. It was powerful enough to get us into this mess and it is powerful enough to get us out. View the market as a tool—not a master—and direct and shape it toward desirable ends.
Finding solutions to our economic and climate challenges requires more than political slogans, subsidies, and success at the ballot box. It requires learning. Learning from one another. Learning new ways to produce and live. Learning what works. If we invest in and facilitate the learning we can catalyze market transformations that make us more green, in terms of profits and sustainability.
Read more in Noonan’s new book, Ecolabels, Innovation, and Green Market Transformation, out now: https://www.amazon.com/Ecolabels-Innovation-Green-Market-Transformation/dp/1108744842/
