Energy Use in New Commercial Buildings

+ Matthew Kahn

The commercial real estate sector is a major consumer of electricity and thus is a major contributor to creating greenhouse gas emissions. My working paper with Nils Kok and the late John Quigley addresses energy consumption in commercial buildings and I’m excited to talk about it in a seminar with my UCLA colleagues. This December 2012 draft is slightly out of date but it will show you what we are trying to do. Here are the big ideas:

Idea #1:  Building quality and energy consumption are complements and new buildings are consuming more energy over time.  This contrasts with evidence on vehicle emissions and energy consumption in residential housing, cases where new capital is cleaner than older capital (see Kahn and Schwartz 2008 and Costa and Kahn 2011).

Idea #2:  Buildings with Full Service Lease tenants consume more electricity.  These tenants face a zero marginal cost for electricity. The law of demand holds!

Idea #3:  Buildings with a building manager on site consume less electricity. Human capital conserves on natural capital!

Idea #4:  Buildings with more government tenants consume more power. Beware soft budget constraints!

Idea #5:  The Rebound Effect Lurks — On hot days, newer buildings consume more power. Though such buildings have newer and more efficient HVAC systems, we conjecture that lower prices per unit of comfort encourage the tenants in the newer buildings to set the thermostat lower. This rebound effect leads to a net increase in energy consumption.

Cross-posted with modifications from the Environmental and Urban Economics blog.

Tile image by Callum Scott.

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