Green Home Standards: Information and Incentives

Abstract

The “green building” movement began in the United States during the 1990s. In its early stages, reformers focused on minimizing adverse environmental impacts from major public, institutional, and commercial buildings. Private-sector organizations developed voluntary standards to promote green building practices, the most prominent being LEED (Leadership in Energy and Environmental Design). More recently, widespread interest in residential green building has developed. Several organizations having developed voluntary green home standards. A standard promulgated by the federal government, the Energy Star Certified Home, has achieved substantial market success during the past decade. This article describes and assesses the Energy Star Home and its private-sector counterparts, including LEED for Homes, which have gained far less popular interest. Although voluntary green standards have the potential to provide valuable and reliable environmental information, thus enabling buyers to make better decisions, Energy Star falls short with respect to an “information function” (conveying information to buyers). It considers only the energy efficiency of the structure and its heating and cooling systems, ignoring other important factors, including the location and size of the house, the lot, and the greenness of building materials and construction practices. In addition, Energy Star perform poorly with respect to an “incentive function” (encouraging producers to make better products) by allowing homebuilders to ignore many considerations bearing on a home’s “greenness.” This article concludes that the federal government should reconsider the Energy Star Home program, either abandoning or greatly scaling back the program. This may allow private-sector organizations to supplant the Energy Star program with more useful, more nuanced, and more environmentally friendly green-home certification systems.

Keywords: green homes, green building, housing, sustainable development, smart growth, voluntary standards, Energy Star, LEED, energy efficiency, eco-labels, environmentalism

JEL Classification: K23, K32