In the posts below, there are two new working papers -- just in time to allow for killing some time during the food-filled Christmas days (I know, this year Christman is just like a regular weekend, but...Europe not only celebrates Dec 24 and 25, but also SECOND Christmas Day, the 26th. Well, we better enjoy it as long as these perks last...). The first paper is a long-awaited piece on the "value of green" in the UK, using BREEAM certification as a proxy for environmental performance. To be honest: all such studies outside of the US suffer from the crappy data syndrome, including this paper. It's incredible, but we could not find a consistent, widespread indicator of building quality in the UK. Yes, there is the anecdotal "prime," "institutional," or "Grade A," but there is no such quality rating as BOMA's standard in the US and Canada. As a result, we end up comparing apples to oranges, even though we try hard to make the green buildings as non-green as possible (think: propensity score weights, an overload of locational and hedonic controls, and decent models). We end up with a "green premium" that's a bit too high to my taste, but I'm hoping the reader takes away more than just that: we also find that green buildings lead to gentrification of neighbourhoods, raising locational value for all surrounding properties. That's quite a novel result. We also document that once the number of certified buildings in an area increases, the "green premium" becomes smaller, and zero once the number of green buildings in an area is larger than eight or nine (remember: this is statistics, so it's just an average). Worth reading (comments welcome).
The second paper is with Dirk Brounen (Tilburg University) and extends our work on residential energy consumption, energy labels, and capitalization of energy efficiency by private homeowners. In this (slightly premature) paper, we explore the results of a large survey that we sent to homeowners, asking them nasty questions about their energy consumption, their ideology and attitudes towards the environment, lifestyle, and their ability to make rational decisions when it comes to investments in energy efficiency. We dub awareness and ability: "energy literacy." Not surprising, but only fifty percent of our respondents has some idea about their energy bill -- and the variation is unrelated to education. Intelligence does not increase awareness of residential energy consumption. But, lifestyle and attitude does: well-organized, older people tend to score better on energy literacy. We then study the behavior of households as it relates to thermal comfort, i.e., their thermostat setting during the evening and at night. Our study is executed in Holland, and remember: in Northwestern Europe it's cold in winter, so heating matters! Our results show that older respondents with higher incomes choose higher comfort levels, and age is negatively related to lowering the temperature at night. We also find that setting the evening temperature higher than average increases the gas bill quite substantially. The behavior of the household in “turning the knob” results in statistically significant effects. We then add a night switching dummy that indicates whether the household lowers the home temperature at night. The results confirm that switching to lower night temperatures significantly lowers the gas bill. Household behavior matters strongly for residential energy consumption, but a large group of households doesn't seem to care (or is rather unaware). We refer to this group of consumers as “sleepers,” comparable to the “woodheads” of Quigley and Deng (2002) that just forego substantial savings on mortgage payments through refinancing. Many households forego savings on energy payments through ignoring temperature control: a clear case for switching to a default that installs pre-programmed smart meters that safe energy at night. Using this "opt-out" approach would swiftly reduce the energy bill without the explicit consent of the household. (Sounds familiar? Think about "opt-out" pension saving schemes or "opt-out" organ donation systems. These nudges have been shown to be quite effective and I assume you've read Thaler and Sunstein's classic on this topic.)
Ok, on a lighter topic: I've been on a road show for the Global Real Estate Sustainability Benchmark during the past month(s), visiting for example Australia. I keep on being impressed by the state of sustainability Down Under, with all market participants striving to be the environmental leader. The most recent recognition was for Stockland, the 2011 Sector Leader in the DJSI Index, which, arguably, is mostly about organizational sustainability. Colonial First State topped the Carbon Disclosure Project. Etc.
I also visited a slightly less sustainable area: the Emirates. I was hosted by Carrier (a United Technologies company) and we visited Oman, Abu Dhabi and Dubai (in 2.5 days, that is). In a climate where the temperature reaches 50 Celsius (approximately 130F) for a large part of the year, combined with a high humidity, HVAC energy consumption should be a big issue. Alas, when energy is cheap and (otherwise expensive, desalinated) water is subsidized, nobody cares. But that has started to change: district cooling is integrated in most new developments, and these outfits are commercial enterprises, charging market prices. Landlords have already started to complain that operating costs in their buildings are getting out of hand. That's what happens when you build fancy-looking office/residential towers and fill them with crappy equipment. I see business opportunities...