and Private Certification Timothy Simcoe Boston University & - - PowerPoint PPT Presentation

LEED Adopters: Public Procurement and Private Certification

Timothy Simcoe Boston University & NBER Michael Toffel Harvard Business School

Procurement Spillovers

• Procurement as public policy tool

– EPA Environmentally Preferable Purchasing – EU Green Public Procurement

• Will these polices have a large impact?

– Direct effect is necessarily limited

• Gov’t = max 10-15% of all purchasing (Marron 2003)

– Net impact hinges on private-sector spillovers

• Research Question: Do municipal green-building

procurement policies induce private green building?

Paper Overview

• Empirical case study of LEED certification

– Treatment = Municipal Green Building Policy – Matching and difference-in-differences methods

• When CA cities commit to green procurement:

– Private-sector LEED registrations increase

• From ~7% to ~13% of all new non-residential construction

– LEED Professional Accreditations (APs) increase – Similar effects in adjacent neighbor cities – No evidence of pre-policy impacts

What’s going on?

• Unobserved local preference for green construction
• Municipal government as “LEED” adopter

– Demand effects (e.g. Corts 2010) => Increase in LEED APs – Regulatory coercion => Developers adopt LEED – Government as catalyst (e.g. Farrell and Saloner 1986)

Accredited Professionals Real Estate Developers Municipal Government Local Tastes & Demand

Green Building Certification: Overview

• Leadership in Energy & Environmental Design (LEED)

– US Green Building Council (1998) – Point system: Certified, Silver, Gold, Platinum – Tailored to New Construction, Existing Buildings, Retail…

• Benefits of LEED

– Higher rents and occupancy rates (Eichholtz, Kok & Quigley 2009) – Energy savings of ~25%? (Turner and Frankel 2008)

• Basic Certification Process

– Register with USGBC / GBCI ($450-600) – Design and Build

• Huge variation in $/point
• Key input: LEED Accredited Professionals ($350 exam)

– Third-party certification (~$2000)

Annual LEED Registrations

Federal, State & Local gov’t are a declining share of annual LEED registrations

Municipal Green Building Policies

• Hand collected data on public procurement (early 2009)

– Start with USGBC and DSIRE lists – Found 144 US cities, 40 in California – Read municipal codes

• Conservative definition of “green procurement”

– No observable incentives for private developers – Ninety percent of municipal policies use LEED points

• Substantial heterogeneity across cities

– Who is affected?

• Size, owner, use, new vs. renovations

– Design: Tax credits, zoning, procurement, fee-bates – Measurement: What is green?

Empirical Methods

• Threats to causal inference

– OVB: Green tastes => policy & registration – Reverse Causation: Private LEED => policy change

• Empirical strategy

– 1) Coarsened Exact Matching (Iacus, King & Porro 2009)

• Requires some city-level “green” observables
• CA ballots, LCV scores & Prius registrations (Kahn 2002, 2009)

– 2) Analyze adopters and adjacent neighbors – 3) Timing: Diff-in-diffs and hazard of policy adoption

CEM Intuition & Advantages

Green Brown Large 10 Treated 10 Control CEM Weight = 1 5 Treated 10 Control CEM Weight = ½ Small 5 Treated 10 Control CEM Weight = ½ 1 Treated 100 Control CEM Weight = 0.01

Transparent, non-parametric, matches all moments We match on Prius, Population, New buildings and Income

Coarsen => Stratify => Exact Match => Weighted OLS

Matching and Balance Tests

Main Results: Cross-section

Adopters and Neighbors and Matched Controls Matched Controls Outcome Registrations Accreditations Registrations Accreditations Green Policy 6.63 11.55 (3.20)** (13.79) Green Neighbor 0.77 4.06 (0.38)** (1.32)*** Prius 2008

• 6.39
• 17.80

0.20 1.31 (4.23) (21.26) (0.42) (1.55) Green Ballot Share 20.78 23.00 0.47

• 6.62

(12.09)* (48.43) (1.06) (3.91)* Observations 202 202 453 453 R-squared 0.55 0.36 0.15 0.34 Mean DV 7.92 39.74 1.11 5.24 Marginal Effect 84% 29% 69% 77%

Diff-in-Diffs: Adopter Registrations

Yit = αi + λt + βy GreenPolicyi + εit

Average difference in LEED registration rate between adopter and control cities 2 years after policy adoption (relative to pre-adoption year)

Diff-in-diff: Neighbor-city LEED APs

Average difference in number of new LEED APs between neighbor and control cities 2 years after policy adoption (relative to pre-adoption year)

Potential Extensions

• Would like to estimate the “structural” parameters

– Need instruments for accreditation and/or certification

• Fine-grained analysis of LEED Accredited Professionals

– Data on all CA licensed architects – Address data for buildings and architects

Accredited Professionals Real Estate Developers Instrumental Variable

Conclusions & Caveats

• Evidence of green procurement spillovers
• Potential mechanisms

– Gov’t as lead adopter => Stimulates supply of APs – Gov’t as catalyst => Coordinates developers & APs

• Caveats

– Extrapolation & stacking the deck – Environmental impact? – Procurement policy lock-in

• Might other standards (e.g. Energy Star) be better?

Thank You!

tsimcoe@bu.edu mtoffel@hbs.edu

Hazard Models for Policy Adoption

Evidence against “capture” & reverse causality

LEED Threshold Effects