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How Business Interest Groups Matter: Rare Event Modeling of Green Building Policy in Cities

How Business Interest Groups Matter: Rare Event Modeling of Green Building Policy in Cities JOURNAL OF SUSTAINABLE REAL ESTATE 2020, VOL. 12, NO. 1, 1–15 ARES https://doi.org/10.1080/19498276.2021.1913389 American Real Estate Society How Business Interest Groups Matter: Rare Event Modeling of Green Building Policy in Cities J. C. Martel School of Public Affairs and Administration, University of Kansas, Lawrence, KS, USA KEYWORDS ABSTRACT Urban policy; cities; This research distinguishes among the business interest groups and community factors asso- business interest groups; ciated with green building policies in cities and towns to examine a specific type of busi- sustainability; ness interest group—construction industry associations—involved in the green building green building policy arena. Rare event logit modeling is used to estimate the association of “traditional” and “green” industry groups with green building policy while controlling for various charac- teristics of cities. It is no surprise that the results indicate that the presence of green indus- try association members increases the likelihood of the presence of a green building policy. However, traditional groups do not limit the probability of a green building policy, as was expected. Community characteristics show that general revenue, population, household income, and education are all higher in cities with modern building codes, and that the average cost of energy is lower in cities with modern building codes. Green building policies, such as building certifica- each year by real estate company CBRE, shows that tions, prescriptive checklists, permit fee reductions almost 40% of office building square footage in 30 and green building codes, have been diffusing major real estate markets are certified to green or throughout the United States continuously since the energy efficiency standards, up from 5% in 2005 1990s, when the U.S. Green Building Council indicating the growth in green buildings that has launched the Leadership in Energy and occurred over the past 15 years (CBRE, 2017). While Environmental Design (LEED) program. Although it this is impressive growth, it equates to only 4.7% of was originally intended to be a voluntary program, total physical buildings in these markets, suggesting LEED certification is now required by many state that large office buildings in major real estate mar- and local governments for government, commercial, kets are more likely to be built to green standards industrial, and residential buildings within their juris- than small buildings, industrial facilities, or buildings diction. The widespread adoption of these green in small cities and towns with relatively non-com- building policies provides an opportunity to better petitive real estate markets (Gripne et al., 2012). understand (1) how business interest groups that The cost to build green is typically offset by the are known to be influential in this policy arena at market premium of the LEED certification. Research national and state levels of government are associ- shows that building to green standards for office ated with green building policies at the local levels, buildings costs 2–17% more compared to conven- and (2) if there are differences in associations tional office buildings depending on the certifica- depending on the target population of the policies, tion level, credit selection, product and design i.e., whether LEED requirements apply to private or choices, and other factors (Ross et al., 2007; USGBC, public buildings. 2015; Zuo & Zhao, 2014). Green buildings command Adoption of green building varies across real rental and sales price premiums of 3–17% and estate markets and building types. The National 13–26%, respectively (Gripne et al., 2012). Costs and Green Building Adoption Index that is published returns on investments vary widely across the CONTACT J. C. Martel jmartel701@hotmail.com University of Kansas, 1450 Jayhawk Blvd., Lawrence, KS 66045, USA. 2021 The Author(s). Published with license by Taylor & Francis Group, LLC This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. 2 J. C. MARTEL country, and in some real estate markets returns on requirements are fulfilled by the builder; or provide investments have not been quantifiable due to lim- financial incentives such as reduced permit fees. ited data availability about construction costs and More recently, green building codes detailing pre- real estate market prices (Gripne et al., 2012). scriptive requirements for construction activity have Therefore, many construction industry professionals been developed. Mostly these codes have been are hesitant to embrace green building as a con- adopted in such a way that participation is volun- struction practice, but early adopters may benefit tary rather than mandatory, as is more commonly from new market demand (Circo, 2007; Fuerst et al., required with other building codes. 2014; May & Koski, 2007). This work examines two types of industry interest The rapid green building market growth for groups—traditional industry and green building some building types (e.g., office buildings) and slow association members—within the same industry. I progress for other types (e.g., industrial) as well as define “green” industry association members as hav- variations in costs and benefits lends to uncertainty ing the desire for construction and land develop- in the marketplace and green building policy arena. ment that enables fewer negative externalities than This provides an ideal case selection to examine the conventional buildings in terms of carbon emissions, roles and motivations of business interest groups at auto-dependency and excess water consumption, the local level, an understudied segment of the for example, and more positive externalities such as population in urban environmental policy research. better indoor air quality and reduced operating This paper begins with an exploration of theories costs for building owners (Schindler, 2010). The on why various types of interest groups are green industry association members are associated expected to support or oppose green building poli- with contemporary perspectives on corporate cies that apply to public and private buildings. The responsibility where business may act in ecological theories lead into three hypotheses regarding the interests motivated by stakeholder pressures, as well role of interest group association members in local as ethical motivations and a desire for new eco- green building standards. Next, I provide back- nomic opportunity (Bansal & Roth, 2000). Traditional ground information on the LEED program. I use rare industry association members represent the classical event logit regression modeling to understand how economic view of the firm as a profit maximizer two types of interest groups—traditional builders (March, 1962), and are associated with a motivation and green builders—correlate with green building by profits for personal gains and less likely to policies while controlling for political, socioeco- internalize incremental costs associated with green nomic and problem severity factors. I find that the building. Members in either organization include green building interest group is associated with professionals such as builders, architects, designers, increases in green building policies whereas the and product suppliers. traditional building interest group does not have a Drawing from literature on economics, policy statistically significant association. studies, and urban sustainability, assorted factors help explain why various types of business interest Theory and Hypotheses groups are expected to support green building poli- cies in some cases and oppose green building in Regulations for green buildings isolates a highly technical, low public salience policy option, tending other cases. Overall, some distinguishing fac- to engage technical building experts with minimal tors include: news media or public attention to the issue (Koski, whether the policy applies to public buildings 2010). Green building policies typically specify if the only or also includes privately owned buildings; policy applies to public buildings only, or to both if it is voluntary (e.g., in exchange for permit fee public and private buildings. These policies can reductions or other financial incentives) or man- require building certifications or prescriptive check- datory (e.g., must comply with certification lists that require minimum building standards; offer expedited permitting by the government’s building requirements or prescriptive green building and planning departments when green building codes); and JOURNAL OF SUSTAINABLE REAL ESTATE 3 the extent to which the industry group is to be more significant at the state and national lev- expected to gain a market advantage from the els than local levels because interest groups are policy adoption. generally more active at higher levels of govern- ment particularly with paid professionals lobbying In extent research, empirical results on the effects for their group’s policy position (Berry, 2010). of interest groups are widely varied. Some of the Typically, urban sustainability research use prox- variation is explained by the aforementioned factors ies for interest group presence where the value of in addition to the level of government and how the the manufacturing sector (e.g., Koski & Lee, 2014), interest group variable is constructed. counts of manufacturing establishments (e.g., Sharp The extent research that explores business inter- et al., 2011), or combined measures of Chamber of est effects on green and sustainability policy adop- Commerce members and developers represents tion often does not recognize the importance of the industry group strength (e.g., Daley et al. 2013; distinction in the policy’s target population, and Schumaker, 2013). While this approach is appropri- how the target population is expected to mediate ate when interest groups are control variables and the effects. Research that uses privately owned not the focal predictor, it neglects the variation of buildings for case selection does not necessarily interest groups that are active in specialized issue generalize to policies that apply to public buildings domains. Consequently, estimates of interest groups because of the differences in who pays the incre- effects on sustainability policy adoption are widely mental costs to build to higher standards. Whether varied. For example, in a study on local-level green the target population of the policy is public or pri- building (buildings, not policies), Lee and Koski vately owned buildings is often not overtly recog- (2012) found statistically significant effects of manu- nized as a critical emphasis or isolated in statistical facturing presence (as a proxy for industry interests) modeling, even though the scope of a policy has on counts of green buildings in cities (p. 616). In long been acknowledged as a theoretical determin- studies on broader sustainability policies, Berry and ant in policy adoption (Schattschneider, 1975). Portney (2013) did not find statistically significant The works of May and Koski (2007) and Koski and effects of interest groups on local-level sustainability Lee (2014) are among the exceptions of literature policies that apply to privately owned buildings. that deeply considers how the target population Contrarily, Hawkins and Wang (2013) find that matters in the urban sustainability literature. May involvement of businesses in policy adoption proc- and Koski (2007) provide the insight that “[t]he esses has a statistically significant positive effect on seemingly benign politics of state adoption of green the number of sustainability policies adopted by cit- building requirements defies the conventional ies. Empirical results are somewhat inconclusive on depiction of environmental policymaking as pitting the effects of business interest groups on local industry against environmental interests,” explaining green building policy adoption. that “green building requirements are aimed at practices of public agencies whereas the environ- Building for a New Economy (Support for Green mental regulatory focus is typically the behavior of Building Policies) firms” (p. 50). From this line of research, we can Green building policies for public buildings have expect construction industry groups on the whole particular impacts on the construction industry. In to support green building mandates that apply to the “political market” (Feiock et al., 2008), business public buildings. interest groups may seek green building policy However, May and Koski (2007) did not find that homebuilders support environmental policies for change for economic gain and support govern- public buildings at the state level. They found that ments’ decisions to adopt green building policies, the presence of interest groups had significant particularly when using governments’ own buildings effects on the adoption of green building mandates (Hawkins & Wang, 2013, p. 65). Interest groups rep- for public buildings, with three times greater nega- resenting green construction may view govern- tive influence by oppositional groups such as home- ments’ willingness to construct buildings to green builders (p. 59). Interest group effects are expected standards as an opportunity to shift the market and 4 J. C. MARTEL increase demand for green construction in the pri- long-standing policy position of anti-regulation, toler- vate sector (Berry & Wilcox, 2015, pp. 28–31; ating voluntary involvement in green building but Volokh, 2003). not mandatory prescriptive requirements. The busi- Green builders can gain market advantages by ness sector generally prefers less government regula- participating in energy efficient and green building tion and more voluntary programs, such as financial policy processes. Industry actors can participate in a incentives (Kamieniecki, 2006). voluntary way, offering to help shape the guidelines Business interest groups may oppose green (May & Koski, 2007) and bidding for contracts with building policies, even those that apply only to gov- the government as a way to learn new green build- ernment buildings, for at least two reasons. First, ing practices before the demand for green building the policy signals a market shift opening doors to increases. Firms experience the benefits of partici- subsequent regulation requiring construction practi- pating in advancing energy and green building poli- ces that can be costly and therefore disadvanta- cies as a way to differentiate themselves in the geous to maximizing profits. Many industry actors marketplace as the policies evolve to start regulat- view regulations on public facilities as a slippery ing privately owned buildings (Cotton, 2012)or slope for mandates on private buildings (Bae, 2014; strive to marry economic development and environ- Levmore, 2010; May & Koski, 2007, p. 53). Any adop- mental protection such as in Smart Growth policies tion of green building policies and programs may (Portney, 2013). Moreover, firms generally want their be viewed as an endorsement of green building stakeholders (clients and investors) to view their ideals, paving the way for subsequent mandatory business as supportive of the environment and pub- regulation that the traditional construction industry lic interests (Bansal & Roth, 2000; Darnall would ultimately oppose (Levmore, 2010). Further, et al., 2010). market actors may negotiate with policymakers ta the stance that additional regulations are unwar- H1 (Supportive): Higher numbers of green construction ranted because the industry professionals have interest group members per capita are likely to increase the probability of a green building mandates. already integrated green building and energy effi- cient construction practices into their businesses under a voluntary program (Kamieniecki, 2006). Building as Usual (Opposition to Green Second, the policy change may grow the market for Building Policies) their competitors who specialize in green construc- tion (Levmore, 2010). In a finite construction indus- Drawing from the economic and political theory of try, the total capital available for construction is the firm (March, 1962), business interest groups seek limited. Construction industry professionals who do to maximize their profits in the short and long runs not expand into green building markets could be and therefore oppose public policies that impose crowded out by professionals with modernized, higher cost burdens (Coase, 1937; March, 1962; green building skill sets (Levmore, 2010). Spulber, 2007). In classical economics, profit maxi- mization is determined by the production function, H2 (Oppositional): Higher numbers of traditional cost function and price (March, 1962, p. 668). New construction interest group members per capita are likely to limit the probability of green building mandates. green building regulations increase costs while price movement remains uncertain. It is unknown to build- ers whether the customer will pay a higher price for Background on the LEED Program the building. Following March’s(1962) perception of business as a political coalition, firms are expected to The LEED green building program was developed in form interest groups towards the goal of conflict 2000 by the U.S. Green Building Council (USGBC), a resolution, and their conflict resolution strategy is 501(c)(3) non-profit organization founded in 1993. expected to be stable and meaningful. The stable Continually developed through a consensus-based decision-ma process (USGBC, 2017c), the program and meaningful approach to conflict resolution for traditional construction associations when it comes details prescriptive requirements and environmental to regulations on buildings has historically been a performance standards for the design and JOURNAL OF SUSTAINABLE REAL ESTATE 5 construction of buildings and development projects, for cities, counties, states and federal government and more recently expanded to provide standards buildings maintained by the USGBC beginning in for neighborhoods and cities. Initiated in the United 2017 (USGBC, 2017b, 2018b). Two hundred and sev- enty-nine cities have a LEED certification policy for States, LEED is used in over 160 countries with over public and/or privately owned commercial buildings, 30,000 certified projects worldwide (Shutters & including schools (USGBC, 2018b; Figure 1). Tufts, 2016). While the program was originally used California has the most local level green building voluntarily by construction industry professionals, it policies, many of which are local adoptions of the has increasingly been adopted by governments as a state-level California Green Building Code to replace mandatory policy (Schindler, 2010). existing municipal requirements or amend the state The LEED program has four levels of certification: code with local requirements. Certified, Silver, Gold and Platinum (USGBC, 2017c). Building professionals can apply for certification based on the total number of points that the pro- Focal Independent Variables ject attains, in addition to meeting minimum pro- Table 1 shows the variables and descriptions for all gram requirements such as project size data sources. The focal independent variables are requirements. Points can be achieved in the areas counts of “traditional” and “green” construction of energy or water efficiency; site and land use industry interest group members normalized by the development; location and transportation; indoor air total number of construction workers in the city. The quality; and sustainable materials and resources. To “traditional” interest group variable is comprised of receive project certification, the project team must members of the Building Owners and Managers apply to the USGBC with the appropriate project Association (BOMA). The “green” interest group vari- documentation and registration and certification able is constructed from the publicly-available USGBC fees. Fees associated with the program vary by member list (USGBC, 2018a). There are 5,648 BOMA LEED program type and project size with registra- members in 1,480 communities and 50,336 USGBC tion fees starting at $1,200 and minimum fees for members in 6,301 communities. To give a sense of building design and construction certification how construction professionals in a community relate between $2,850 and $27,500 depending on project to the total population, in New York City and Kansas size (USGBC, 2019). The USGBC Trademark Policy City, approximately 2% of the total population, or allows project owners to market their buildings as 196,634 and 11,473 people, respectively, works in the “LEED registered” or “LEED certified” based on if the construction industry using American Community building has only been registered or actually com- Survey estimations. Nationwide, BOMA and USGBC pleted the certification process (USGBC, 2018c). members represent a mean of 0.2 and 0.5% of the construction industry, respectively. New York City has Research Design 570 BOMA members and 2,098 USGBC members. Kansas City, MO has 98 BOMA members and 285 Case Selection and Dependent Variable USGBC members. This study focuses on policies that require LEED cer- The Washington, D.C.-based USGBC has a decen- tifications for city-level public and privately-owned tralized advocacy model where regional and local commercial buildings, not market incentives such as chapters have members, as well as paid staff, who expedited permitting or fee reductions. Only LEED provide local technical support and professional certification policies are examined because industry green building services and advocate for green groups are not expected to oppose policies for building, which are core benefits of member associ- financial incentives or goal-setting, as those types of ation (Koski, 2010, p. 102; USGBC, 2019). USGBC policies do not impose cost burdens to industry. members represent a variety of professions and sec- The dependent variable is dichotomously coded for tors, including product manufacturers; contractors whether or not a city has adopted a certification and builders; corporate and retail; education and policy. The source of this data comes from the research institutions; environmental and other Public Policy Library of green building requirements 501(c)(3) nonprofit organizations; governments; 6 J. C. MARTEL Figure 1. Count of LEED certification policies in this study (n ¼ 277 cities). Table 1. Variables, descriptions, and data sources for green building models. Variable Description Dependent Variables Policy adoption or non-adoption Adoption of LEED certification requirements for any buildings; commercial buildings only; public buildings only; or non-adoption. Source: USGBC database, 2018; U.S. Census, 2017 Interest Groups (Focal Predictors) Green business interest group Number of USBGC members in each city normalized by the total number of construction workers in the city. Source: USGBC member list, 2018 Traditional business interest group Number of BOMA members in each city normalized by the total number of construction workers in the city. Source: BOMA directory, 2018 Political and Community Characteristics (Control Variables) Political: Institutions and Ideology Form of government Dichotomous variable for city that has a mayor-council form of government (1) or other form of government (0). Source: ICMA Survey, 2011 Climate commitment Dichotomous variable for city that is a signatory of Climate Protection Source: U.S. Conf. of Mayors, 2018; ICLEI, 2018 Agreement or ICLEI member California Dichotomous variable for city that is located in California Government and Industry Capacity General revenue Per capita general revenue for each city ($1000s). Source: Census of Governments, 2012 City Characteristics and Socioeconomic Conditions Population Logged population of each city. Source: 2016 American Community Survey, 5 Year Estimates Income Median household income ($1000s). Source: 2016 American Community Survey, 5 Year Estimates Education Percent of population over age 25 with bachelor’s degree or higher. Source: 2016 American Community Survey, 5-Year Estimates Problem Severity Energy cost Average cost of electricity (kWh) in each county. Where county data is not available, average cost in the state. Source: Energy Information Administration, 2017 Median housing age Median age of housing stock in the city. Source: 2016 American Community Survey, 5 Year Estimates JOURNAL OF SUSTAINABLE REAL ESTATE 7 finance and insurance; professional firms; trade asso- Using Python, I found all city and state combina- ciations; real estate professionals; and energy service tions in the text, and aggregated the counts of providers (USGBC, 2017a). Members are granted members in each community (BOMA, 2018; access to an extensive library of resources, educa- Shinyama, 2016). tional courses, and can market themselves in the Ideally it would be possible to construct a pooled membership directory (USGBC, 2019). cross-sectional dataset with counts of all construc- Green building policy advocacy is a core activity tion sector interest group members for each city in of local chapters, and many Chapters have historic- each year, but I was limited by time and resource ally organized “State Advocacy Day” at their state constraints for data collection. Consequently, only capitol as an effort to educate and persuade state the most dominant interest groups in commercial legislators to consider green building legislation building policy processes—BOMA and USGBC—are (e.g., USGBC Florida Chapter, 2020; USGBC Texas represented in this research. Chapter, 2019; USGBC, n.d). Considerable policy Political and community characteristics (control advocacy also occurs at the city and county levels (e.g., USGBC Florida Chapter, 2020). The variables) USGBC explains: Various forms of government, such as mayor-council or council-manager structures, are expected to influ- USGBC engages with governments at all levels to help ence several aspects of policy processes such as them leverage LEED and green building strategies to interest group engagement during agenda-setting meet their goal—whether that be reducing climate and environmental impacts, achieving high performing and policy adoption (e.g., Bae & Feiock, 2013; and resilient buildings, or saving money. Through Hawkins et al., 2016; Sharp et al., 2011). Mayor- technical assistance, testimony, written comments, council forms of government are expected to be sign-on letters, direct advocacy, and expert articles susceptible to the influences of dominant interest and resources, we are working every day to advance groups because these executive arrangements are green buildings through policy … USGBC’s advocacy associated with an emphasis on short-term political activities focus on green building certification policies including leadership by example for public buildings gains and political alignment with powerful groups and incentives to drive green building in the private within the city. In contrast, council-manager forms sector. (USGBC, 2020) of government tend to be more tactically focused A recent business news article highlights on policy implementation and thus more responsive Colorado as ran highest in the nation for LEED to technical experts. Council-manager government green buildings, noting contributions of the USGBC types are thought to have a longer-term outlook community in helping to achieve these policy goals with the primary interest of maximizing operational (ColoradoBiz, 2020). efficiency and ease of policy implementation. They BOMA is also an organization with local chapters. are more likely to host stakeholder engagement As clearly stated in BOMA’s policy posi- activities so that a diverse interest groups can help tions statements, to shape public policies (Bae & Feiock, 2013; Daley et al., 2013; Krause & Douglas, 2005). The political BOMA International does not support the adoption institutions variable is dichotomously coded for and implementation of green/sustainable building codes intended to apply to all newly constructed mayor-council (1) or other form of government such buildings, or to all tenant finish-out, additions and as council-manager (0) using data from the major renovations to existing buildings … International City Management Association (ICMA) (BOMA, 2018a) Municipal Yearbook and collected directly from city Based on their explicit policy position, it is websites where data is not found in the yearbook. expected that BOMA’s presence in a community will limit the likelihood of pushing a green building pol- Climate commitment icy agenda forward. To gather counts of BOMA In addition to the institutional structure, the city’s members per city, I used the Python programming commitment to climate protection is likely to influ- language and the PDFMiner library to convert the ence the adoption of green building policies. As it 2018 BOMA Member Directory PDF to plain text. relates specifically to climate protection, a combined 8 J. C. MARTEL measure of two indicators are used to construct the Problem severity climate commitment variable: a dummy code if the Cities with very little building activity may be less likely to adopt modern building policies than cities city’s mayor is a signatory of the Mayor’s Climate Protection Agreement or if the city is a member of with more construction activity. The median age of ICLEI Local Governments for Sustainability (1), other- housing in a city is used as a proxy to represent the wise 0. Additionally, California is included as a building stock in the models. Older median housing dummy variable in these models because it has age is associated with less current building activity been a leader in green building policy advancement and a newer median housing age correlates with with a statewide green building code that cities higher levels of recent construction activity. Further, adopt locally. Almost 30% of localities with LEED the average electricity cost in the county is also certification policies in this study are in California. used as a proxy for problem severity, as places with more expensive energy are likely to seek buildings Government and industry capacity policies that reduce energy usage to lessen the eco- In most cities, the city planning and building nomic burden of building operations. Where department relies on general revenue and/or devel- county-level electricity costs is not available, I use opment permit fees to fund government staff to the average electricity cost for the state. implement buildings policies. Thus, general revenue I collected all Census variables using the Python per capita for each city is used as a measure of gov- program, CenPy, which provides an API integration ernment capacity for adopting new building poli- for retrieving Census data tables into Python for cies, as building permit fee data is not available. data processing, such as formatting and joining Overall, cities with struggling economies may have tables (Wolf, 2018). I used the Social Explorer Data less demand for mandatory green building require- Dictionary to find the unique identifiers for the ments than a thriving city that is working to man- American Community Survey data tables (Social age excessive growth. Further, cities need funding Explorer, 2019). I stored the data in an SQLite data- from general revenue or permit fees to manage the base that is easily loadable as a .db file into the R transaction costs, such as training industry members program for statistical computing (Hipp et al., 2015; on new building practices, associated with new R Development Core Team, 2019). green building regulations (Nelson, 2012). Rare Event Logit Model and Discussion on City characteristics and socioeconomic conditions: Modeling Results population, income and education I use rare event logit modeling to estimate the Cities with larger populations have been found to probability of LEED certification policy adoption be more likely to adopt LEED policies due to having given differences in the presence of trade associ- more resources, such as government staff to imple- ation members across cities (King & Zeng, 2001). ment the policy (Cidell & Cope, 2014, p. 1774; This modeling technique resamples the data to run Kontokosta, 2011, p. 75). The size of the construc- tion industry highly correlates with population regression simulations with all values of policy adopters in each simulation. I selected this method (0.95), so population logged is included in the mod- els to retain consistency with many other policy because of the sparse number of cities that have adopted LEED certification policies (277 cities, or adoption studies. Further, counts of housing units highly correlates with population (0.99) and was 1.4% of cities in the sample; Table 2). In order to understand patterns in adoption, I use a dataset of explored but is not used in these models. People with higher education tend to have higher incomes, permit issuing places for information on non-adopt- which in turn typically results in a higher tax base ers. Of the 20,100 permit issuing places in the to support government initiatives. The percentage United States, 19,579 places have sufficient data to of the population with a bachelor’s degree or be included in the statistical models. I use the Zelig higher as well as median household income for library ReLogit class in the R statistical computing each city are included in the model. program for modeling. JOURNAL OF SUSTAINABLE REAL ESTATE 9 Table 2. Descriptive statistics for green building policy adoption models. No Policy Adopted Policy n ¼ 19,302 n ¼ 277 Statistic Mean Min Max Mean Min Max Green interest group 0.004 0 2 0.03 0.00 0.53 Traditional interest group 0.002 0 19 0.01 0.00 0.29 Form of city government 0.14 0 1 0.25 0 1 Climate commitment 0.04 0 1 0.60 0 1 California 0.02 0 1 0.30 0 1 General revenue 1.61 0.00 953.24 2.43 0.37 80.17 Population 7.19 0.00 14.26 10.91 6.91 15.95 Income 48.56 0.00 250.00 72.46 19.52 243.70 Education 0.13 0.00 1.00 0.25 0.07 0.49 Energy cost 10.97 1.79 39.36 12.59 2.18 27.55 Housing age 1966 1939 2016 1972 1939 2004 Table 3. Rare event logit results from modeling green building policy adoption. Dependent variable: LEED Certification Policy Adoption Full Model Public Model Commercial Model Green interest group 0.13 0.04 0.06 (0.02) (0.02) (0.02) Traditional interest group 0.0004 0.001 0.001 (0.01) (0.004) (0.004) Form of city government 0.01 0.01 0.01 (0.002) (0.002) (0.002) Climate commitment 0.12 0.06 0.05 (0.004) (0.003) (0.003) California 0.10 0.03 0.04 (0.01) (0.003) (0.004) General revenue 0.0000 0.0000 0.0000 (0.0001) (0.00) (0.00) Population 0.01 0.003 0.003 (0.001) (0.0003) (0.0004) Income 0.00 0.00 0.00 (0.00) (0.00) (0.00) Education 0.06 0.02 0.03 (0.01) (0.01) (0.01) Energy cost 0.0002 0.0003 0.0001 (0.0003) (0.0002) (0.0002) Housing age 0.0001 0.0001 0.0001 (0.0001) (0.0000) (0.0000) Constant 0.21 1.20 1.14 (0.10) (0.06) (0.07) Observations 19,579 19,579 19,579 R 0.13 0.07 0.06 Adjusted R 0.13 0.06 0.06 Residual Std. Error (df ¼ 19,567) 0.11 0.07 0.08 F Statistic (df ¼ 11; 19,567) 269.09 123.74 111.96 Note: Standard errors in parentheses. p< 0.1; p< 0.05; p< 0.01. For greatest explanatory power, I developed a The second model has 104 cities that adopted full model that includes cities with LEED certifica- LEED certification mandates for public buildings. tion requirements for privately and publicly owned The third model has 125 adopting cities with man- buildings. Next, I explore how the effects shift dates for privately owned commercial buildings depending on whether the policy applies to pri- (Table 3). The full model has the most explanatory vately owned buildings or publicly owned build- power with an R of 0.13. The public and commer- ings by modeling these two population subsets cial models have an R of 0.07 and 0.06, separately. Each model has 19,579 cities that are respectively. bootstrapped or resampled using the rare event Across all models, green interest group presence logit method. The first model has 277 cities that matters for LEED policy adoption. It is not surprising mandated LEED certification for any building type. that green interest groups—operationalized by 10 J. C. MARTEL counts of USGBC members per 1000 people—is more heavily targeted at public buildings. The com- important since the USGBC is the creator of the LEED mercial building model attempts to isolate policies program and has local association members advocat- that regulate privately owned commercial buildings, ing for policy adoption. This reflects the openness of but these policies could be relatively weak. Builders local political systems where local business interest may be able to easily meet the LEED-certified groups can effectively influence government policy. requirements in some markets, depending on state It also shows how powerful an industry association and local building codes. Rebate programs for can be when they develop a voluntary program that energy and water efficiency and urban design of gains such widespread attention and legitimacy that the cities could make LEED credits such as proximity governments begin to adopt it as a mandatory to public transit more easily attainable. requirement. Holding all other independent variables As expected, the political institutional structure at their means, a one standard deviation increase in and climate commitment are consistent with urban green interest group presence increases the city’s policy theory. Cities with mayor-council forms of odds of LEED certification policy adoption by 14% in governments are more likely to have green building the full model and 4 to 6% in the public and com- policies. Not surprisingly, the indicator with the mercial models (Table 4). most impact is whether the city has demonstrated a Figure 2 shows a less linear relationship between commitment to climate protection as a signatory of green building policy adoption and the traditional the Mayor’s Climate Protection Agreement or a construction industry compared to the green con- member of ICLEI. Cities are 13% more likely to struction industry. The traditional interest group is adopt LEED certification requirements when they not significant, and the effects are very small have committed to climate protection (Figure 3). (0.001 or less). This could be explained as trad- Similarly, given the strong state commitment to itional builders not viewing green building construc- green building, cities within California are more tion as their target market, and LEED policies being likely to adopt LEED certification requirements. Table 4. Odds ratios for green building policy adoption models. Dependent variable: LEED Certification Policy Adoption Full Model Public Model Commercial Model Green interest group 1.14 1.04 1.06 (0.02) (0.02) (0.02) Traditional interest group 1.00 1.00 1.00 (0.01) (0.004) (0.004) Form of city government 0.99 0.99 0.99 (0.002) (0.002) (0.002) Climate commitment 1.13 1.06 1.06 (0.004) (0.003) (0.003) California 1.10 1.03 1.04 (0.01) (0.003) (0.004) General revenue 1.00 1.00 1.00 (0.0001) (0.0000) (0.0000) Population 1.01 1.00 1.00 (0.001) (0.0003) (0.0004) Income 1.00 1.00 1.00 (0.0000) (0.0000) (0.0000) Education 1.07 1.02 1.03 (0.01) (0.01) (0.01) Energy cost 1.00 1.00 1.00 (0.0003) (0.0002) (0.0002) Housing age 1.00 1.00 1.00 (0.0001) (0.0000) (0.0000) Constant 1.23 3.32 3.13 (0.10) (0.06) (0.07) Observations 19,579 19,579 19,579 R 0.13 0.07 0.06 Adjusted R 0.13 0.06 0.06 Residual Std. Error (df ¼ 19,567) 0.11 0.07 0.08 F Statistic (df ¼ 11; 19,567) 269.09 123.74 111.96 Note: Standard errors in parentheses. p< 0.1; p< 0.05; p< 0.01. JOURNAL OF SUSTAINABLE REAL ESTATE 11 Figure 2. Marginal effects of interest groups on predicted policy adoption. increase of one standard deviation in education Green interest group increases the city’s odds of policy adoption by 7%. Traditional interest group Income is not significant (which is not surprising California because it is a measure of household income), General revenue whereas LEED building policies typically affect com- Population mercial real estate, not residential. I had also expected higher energy costs and newer building Income stocks to be more likely to increase the odds of pol- Education icy adoption. While energy cost and housing age Energy cost have negative coefficients, the odds ratios are 1, Housing age indicating that there is no significant difference 1.00 1.05 1.10 1.15 between adopting and non-adopting cities. Odds Ratios As illustrated by the statistical modeling in this Figure 3. Odds ratios for LEED policy adoption. study, the ability to identify distinctive motivations within a type of interest group can help explain While population is significant across the models, how distinctive segments within a business interest the odds ratio of 1 signifies that there is not a sub- affect urban policymaking differently—as opposed stantive difference between cities that have or do to than treating business interests as the same not have LEED certification policies on this charac- across the sector. The traditional industry associ- teristic. The varied population sizes of cities adopt- ation had a negative effect on LEED policy adoption ing LEED requirements could be explained by the while the green industry group had a positive outsourced nature of LEED where a third party—the effect, similar to findings in May and Koski (2007). USGBC—and their members are doing most of the These groups both represent the construction program management and document preparation industry, yet have very different effects on LEED cer- for the program, alleviating the administrative bur- tification policy adoption. den to the government. This could also be why In line with the microeconomic theory that firms general revenue is not a significant indicator of pol- are profit maximizers and will seek market differen- icy adoption. tiation to secure profits, green industry association I had expected that communities with higher members are better positioned to absorb the new educational attainment and income would be more market for green building that is grown by city pol- likely to have LEED certification policies. This expect- icy adoption than their traditional peers, who have ation is met for education but not income. An not distinguished themselves in green building 12 J. C. MARTEL expertise. The green industry association members AHPBC website are product-oriented councils and may be ideologically motivated, realizing that firms associations, each with their own membership pop- can obtain substantial profits while also supporting ulations. The Coalition supports “reasonable per- environmental protection, or they may just be stra- formance based policies” and “voluntary adoption,” tegic profit maximizers motivated to get a share of similar to BOMA’s policy position statement. A sub- a new untapped market. Either way, this study sequent study could model the sums of members in shows that their presence increases the likelihood the 42 industry groups for an estimation of their of green building policy adoption, unlike their trad- effects on mandatory green building policy adop- itional peers. tion at the local level. Regarding effects of the control variables, many were statistically significant but had odds ratios of Conclusion 1, indicating no apparent difference between cities The green building policy arena allows for a careful with or without LEED certification policies. LEED cer- examination of the role that business interests play tifications are most common for commercial build- in the adoption and implementation of sustainabil- ings, particularly office buildings, so demographic ity policies at the local level. This research segments variables might be representing latent concepts interest groups that represent a major industry (con- such as urban development patterns involving con- struction) by isolating traditional and green building centrations of office parks and surrounding residen- interests in order to examine interest group behav- tial developments, or diverse urban core ior in sustainability policy in more detail. development patterns in these cities and towns. Contributing to sustainability research, isolating Controlling for city characteristics that characterize business interest groups into distinct segments is local commercial real estate markets, such as num- conducive to explaining effects on urban policy- ber of office buildings in the city or the competi- making with greater nuance than the more com- tiveness of the local office rental market, might monly taken empirical approach that treats business provide a better fit for modeling LEED policies, but interest groups as one unit. this data is not readily available unless purchased In this study, the presence of green building from CBRE, a company that sells commercial real interest group members matter to LEED policies, estate data for local markets. increasing the odds of a LEED policy by up to 14%, A limitation to this study is that it explores only whereas the traditional building interest group had two industry associations among many groups that very little influence. Because USGBC is expected are involved in influencing building-related policies, thereby to gain a market advantage, it is not sur- and the study cannot discern cross-membership prising that the industry group supports LEED poli- between the two groups. I attempted to select the cies. It is, however, surprising that the presence of most distinctive and influential groups, but without traditional construction industry group members surveying government staff and political leaders or does not have a significant negative effect on the counting testimonies from public hearings it is diffi- presence of LEED certification policies, because pri- cult to validate the selection of the two groups. The vate industry is expected to reject mandatory regu- USGBC is an obvious choice because it is the organ- lations due to potential loss of profits and a ization that developed LEED. BOMA is known to be perceived advantage of such policy benefiting their highly influential and oppositional in building- competitors. related policy adoption processes, according to The policy’s target population—public or com- expert knowledge, and their explicit oppositional mercial buildings—is not a distinguishing factor in policy statement is cited earlier in this paper. Other groups are also influential. An article on why some this study, but theoretically the policy scope is industry groups are trying to ban green building expected to be an important consideration because standards (Badger, 2013) points to the American construction industry groups are expected to be High-Performance Buildings Coalition (AHPBC) as an more likely to support policies that regulate public industry-led coalition opposing LEED (AHPBC, 2018a, buildings rather than private buildings, due to who 2018b). The 42 coalition members listed on the pays the incremental cost for green construction. 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How Business Interest Groups Matter: Rare Event Modeling of Green Building Policy in Cities

Martel, J. C.
Journal of Sustainable Real Estate , Volume 12 (1): 15 – Jan 1, 2020
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Taylor & Francis
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© 2021 The Author(s). Published with license by Taylor & Francis Group, LLC
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1949-8284
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10.1080/19498276.2021.1913389
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JOURNAL OF SUSTAINABLE REAL ESTATE 2020, VOL. 12, NO. 1, 1–15 ARES https://doi.org/10.1080/19498276.2021.1913389 American Real Estate Society How Business Interest Groups Matter: Rare Event Modeling of Green Building Policy in Cities J. C. Martel School of Public Affairs and Administration, University of Kansas, Lawrence, KS, USA KEYWORDS ABSTRACT Urban policy; cities; This research distinguishes among the business interest groups and community factors asso- business interest groups; ciated with green building policies in cities and towns to examine a specific type of busi- sustainability; ness interest group—construction industry associations—involved in the green building green building policy arena. Rare event logit modeling is used to estimate the association of “traditional” and “green” industry groups with green building policy while controlling for various charac- teristics of cities. It is no surprise that the results indicate that the presence of green indus- try association members increases the likelihood of the presence of a green building policy. However, traditional groups do not limit the probability of a green building policy, as was expected. Community characteristics show that general revenue, population, household income, and education are all higher in cities with modern building codes, and that the average cost of energy is lower in cities with modern building codes. Green building policies, such as building certifica- each year by real estate company CBRE, shows that tions, prescriptive checklists, permit fee reductions almost 40% of office building square footage in 30 and green building codes, have been diffusing major real estate markets are certified to green or throughout the United States continuously since the energy efficiency standards, up from 5% in 2005 1990s, when the U.S. Green Building Council indicating the growth in green buildings that has launched the Leadership in Energy and occurred over the past 15 years (CBRE, 2017). While Environmental Design (LEED) program. Although it this is impressive growth, it equates to only 4.7% of was originally intended to be a voluntary program, total physical buildings in these markets, suggesting LEED certification is now required by many state that large office buildings in major real estate mar- and local governments for government, commercial, kets are more likely to be built to green standards industrial, and residential buildings within their juris- than small buildings, industrial facilities, or buildings diction. The widespread adoption of these green in small cities and towns with relatively non-com- building policies provides an opportunity to better petitive real estate markets (Gripne et al., 2012). understand (1) how business interest groups that The cost to build green is typically offset by the are known to be influential in this policy arena at market premium of the LEED certification. Research national and state levels of government are associ- shows that building to green standards for office ated with green building policies at the local levels, buildings costs 2–17% more compared to conven- and (2) if there are differences in associations tional office buildings depending on the certifica- depending on the target population of the policies, tion level, credit selection, product and design i.e., whether LEED requirements apply to private or choices, and other factors (Ross et al., 2007; USGBC, public buildings. 2015; Zuo & Zhao, 2014). Green buildings command Adoption of green building varies across real rental and sales price premiums of 3–17% and estate markets and building types. The National 13–26%, respectively (Gripne et al., 2012). Costs and Green Building Adoption Index that is published returns on investments vary widely across the CONTACT J. C. Martel jmartel701@hotmail.com University of Kansas, 1450 Jayhawk Blvd., Lawrence, KS 66045, USA. 2021 The Author(s). Published with license by Taylor & Francis Group, LLC This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. 2 J. C. MARTEL country, and in some real estate markets returns on requirements are fulfilled by the builder; or provide investments have not been quantifiable due to lim- financial incentives such as reduced permit fees. ited data availability about construction costs and More recently, green building codes detailing pre- real estate market prices (Gripne et al., 2012). scriptive requirements for construction activity have Therefore, many construction industry professionals been developed. Mostly these codes have been are hesitant to embrace green building as a con- adopted in such a way that participation is volun- struction practice, but early adopters may benefit tary rather than mandatory, as is more commonly from new market demand (Circo, 2007; Fuerst et al., required with other building codes. 2014; May & Koski, 2007). This work examines two types of industry interest The rapid green building market growth for groups—traditional industry and green building some building types (e.g., office buildings) and slow association members—within the same industry. I progress for other types (e.g., industrial) as well as define “green” industry association members as hav- variations in costs and benefits lends to uncertainty ing the desire for construction and land develop- in the marketplace and green building policy arena. ment that enables fewer negative externalities than This provides an ideal case selection to examine the conventional buildings in terms of carbon emissions, roles and motivations of business interest groups at auto-dependency and excess water consumption, the local level, an understudied segment of the for example, and more positive externalities such as population in urban environmental policy research. better indoor air quality and reduced operating This paper begins with an exploration of theories costs for building owners (Schindler, 2010). The on why various types of interest groups are green industry association members are associated expected to support or oppose green building poli- with contemporary perspectives on corporate cies that apply to public and private buildings. The responsibility where business may act in ecological theories lead into three hypotheses regarding the interests motivated by stakeholder pressures, as well role of interest group association members in local as ethical motivations and a desire for new eco- green building standards. Next, I provide back- nomic opportunity (Bansal & Roth, 2000). Traditional ground information on the LEED program. I use rare industry association members represent the classical event logit regression modeling to understand how economic view of the firm as a profit maximizer two types of interest groups—traditional builders (March, 1962), and are associated with a motivation and green builders—correlate with green building by profits for personal gains and less likely to policies while controlling for political, socioeco- internalize incremental costs associated with green nomic and problem severity factors. I find that the building. Members in either organization include green building interest group is associated with professionals such as builders, architects, designers, increases in green building policies whereas the and product suppliers. traditional building interest group does not have a Drawing from literature on economics, policy statistically significant association. studies, and urban sustainability, assorted factors help explain why various types of business interest Theory and Hypotheses groups are expected to support green building poli- cies in some cases and oppose green building in Regulations for green buildings isolates a highly technical, low public salience policy option, tending other cases. Overall, some distinguishing fac- to engage technical building experts with minimal tors include: news media or public attention to the issue (Koski, whether the policy applies to public buildings 2010). Green building policies typically specify if the only or also includes privately owned buildings; policy applies to public buildings only, or to both if it is voluntary (e.g., in exchange for permit fee public and private buildings. These policies can reductions or other financial incentives) or man- require building certifications or prescriptive check- datory (e.g., must comply with certification lists that require minimum building standards; offer expedited permitting by the government’s building requirements or prescriptive green building and planning departments when green building codes); and JOURNAL OF SUSTAINABLE REAL ESTATE 3 the extent to which the industry group is to be more significant at the state and national lev- expected to gain a market advantage from the els than local levels because interest groups are policy adoption. generally more active at higher levels of govern- ment particularly with paid professionals lobbying In extent research, empirical results on the effects for their group’s policy position (Berry, 2010). of interest groups are widely varied. Some of the Typically, urban sustainability research use prox- variation is explained by the aforementioned factors ies for interest group presence where the value of in addition to the level of government and how the the manufacturing sector (e.g., Koski & Lee, 2014), interest group variable is constructed. counts of manufacturing establishments (e.g., Sharp The extent research that explores business inter- et al., 2011), or combined measures of Chamber of est effects on green and sustainability policy adop- Commerce members and developers represents tion often does not recognize the importance of the industry group strength (e.g., Daley et al. 2013; distinction in the policy’s target population, and Schumaker, 2013). While this approach is appropri- how the target population is expected to mediate ate when interest groups are control variables and the effects. Research that uses privately owned not the focal predictor, it neglects the variation of buildings for case selection does not necessarily interest groups that are active in specialized issue generalize to policies that apply to public buildings domains. Consequently, estimates of interest groups because of the differences in who pays the incre- effects on sustainability policy adoption are widely mental costs to build to higher standards. Whether varied. For example, in a study on local-level green the target population of the policy is public or pri- building (buildings, not policies), Lee and Koski vately owned buildings is often not overtly recog- (2012) found statistically significant effects of manu- nized as a critical emphasis or isolated in statistical facturing presence (as a proxy for industry interests) modeling, even though the scope of a policy has on counts of green buildings in cities (p. 616). In long been acknowledged as a theoretical determin- studies on broader sustainability policies, Berry and ant in policy adoption (Schattschneider, 1975). Portney (2013) did not find statistically significant The works of May and Koski (2007) and Koski and effects of interest groups on local-level sustainability Lee (2014) are among the exceptions of literature policies that apply to privately owned buildings. that deeply considers how the target population Contrarily, Hawkins and Wang (2013) find that matters in the urban sustainability literature. May involvement of businesses in policy adoption proc- and Koski (2007) provide the insight that “[t]he esses has a statistically significant positive effect on seemingly benign politics of state adoption of green the number of sustainability policies adopted by cit- building requirements defies the conventional ies. Empirical results are somewhat inconclusive on depiction of environmental policymaking as pitting the effects of business interest groups on local industry against environmental interests,” explaining green building policy adoption. that “green building requirements are aimed at practices of public agencies whereas the environ- Building for a New Economy (Support for Green mental regulatory focus is typically the behavior of Building Policies) firms” (p. 50). From this line of research, we can Green building policies for public buildings have expect construction industry groups on the whole particular impacts on the construction industry. In to support green building mandates that apply to the “political market” (Feiock et al., 2008), business public buildings. interest groups may seek green building policy However, May and Koski (2007) did not find that homebuilders support environmental policies for change for economic gain and support govern- public buildings at the state level. They found that ments’ decisions to adopt green building policies, the presence of interest groups had significant particularly when using governments’ own buildings effects on the adoption of green building mandates (Hawkins & Wang, 2013, p. 65). Interest groups rep- for public buildings, with three times greater nega- resenting green construction may view govern- tive influence by oppositional groups such as home- ments’ willingness to construct buildings to green builders (p. 59). Interest group effects are expected standards as an opportunity to shift the market and 4 J. C. MARTEL increase demand for green construction in the pri- long-standing policy position of anti-regulation, toler- vate sector (Berry & Wilcox, 2015, pp. 28–31; ating voluntary involvement in green building but Volokh, 2003). not mandatory prescriptive requirements. The busi- Green builders can gain market advantages by ness sector generally prefers less government regula- participating in energy efficient and green building tion and more voluntary programs, such as financial policy processes. Industry actors can participate in a incentives (Kamieniecki, 2006). voluntary way, offering to help shape the guidelines Business interest groups may oppose green (May & Koski, 2007) and bidding for contracts with building policies, even those that apply only to gov- the government as a way to learn new green build- ernment buildings, for at least two reasons. First, ing practices before the demand for green building the policy signals a market shift opening doors to increases. Firms experience the benefits of partici- subsequent regulation requiring construction practi- pating in advancing energy and green building poli- ces that can be costly and therefore disadvanta- cies as a way to differentiate themselves in the geous to maximizing profits. Many industry actors marketplace as the policies evolve to start regulat- view regulations on public facilities as a slippery ing privately owned buildings (Cotton, 2012)or slope for mandates on private buildings (Bae, 2014; strive to marry economic development and environ- Levmore, 2010; May & Koski, 2007, p. 53). Any adop- mental protection such as in Smart Growth policies tion of green building policies and programs may (Portney, 2013). Moreover, firms generally want their be viewed as an endorsement of green building stakeholders (clients and investors) to view their ideals, paving the way for subsequent mandatory business as supportive of the environment and pub- regulation that the traditional construction industry lic interests (Bansal & Roth, 2000; Darnall would ultimately oppose (Levmore, 2010). Further, et al., 2010). market actors may negotiate with policymakers ta the stance that additional regulations are unwar- H1 (Supportive): Higher numbers of green construction ranted because the industry professionals have interest group members per capita are likely to increase the probability of a green building mandates. already integrated green building and energy effi- cient construction practices into their businesses under a voluntary program (Kamieniecki, 2006). Building as Usual (Opposition to Green Second, the policy change may grow the market for Building Policies) their competitors who specialize in green construc- tion (Levmore, 2010). In a finite construction indus- Drawing from the economic and political theory of try, the total capital available for construction is the firm (March, 1962), business interest groups seek limited. Construction industry professionals who do to maximize their profits in the short and long runs not expand into green building markets could be and therefore oppose public policies that impose crowded out by professionals with modernized, higher cost burdens (Coase, 1937; March, 1962; green building skill sets (Levmore, 2010). Spulber, 2007). In classical economics, profit maxi- mization is determined by the production function, H2 (Oppositional): Higher numbers of traditional cost function and price (March, 1962, p. 668). New construction interest group members per capita are likely to limit the probability of green building mandates. green building regulations increase costs while price movement remains uncertain. It is unknown to build- ers whether the customer will pay a higher price for Background on the LEED Program the building. Following March’s(1962) perception of business as a political coalition, firms are expected to The LEED green building program was developed in form interest groups towards the goal of conflict 2000 by the U.S. Green Building Council (USGBC), a resolution, and their conflict resolution strategy is 501(c)(3) non-profit organization founded in 1993. expected to be stable and meaningful. The stable Continually developed through a consensus-based decision-ma process (USGBC, 2017c), the program and meaningful approach to conflict resolution for traditional construction associations when it comes details prescriptive requirements and environmental to regulations on buildings has historically been a performance standards for the design and JOURNAL OF SUSTAINABLE REAL ESTATE 5 construction of buildings and development projects, for cities, counties, states and federal government and more recently expanded to provide standards buildings maintained by the USGBC beginning in for neighborhoods and cities. Initiated in the United 2017 (USGBC, 2017b, 2018b). Two hundred and sev- enty-nine cities have a LEED certification policy for States, LEED is used in over 160 countries with over public and/or privately owned commercial buildings, 30,000 certified projects worldwide (Shutters & including schools (USGBC, 2018b; Figure 1). Tufts, 2016). While the program was originally used California has the most local level green building voluntarily by construction industry professionals, it policies, many of which are local adoptions of the has increasingly been adopted by governments as a state-level California Green Building Code to replace mandatory policy (Schindler, 2010). existing municipal requirements or amend the state The LEED program has four levels of certification: code with local requirements. Certified, Silver, Gold and Platinum (USGBC, 2017c). Building professionals can apply for certification based on the total number of points that the pro- Focal Independent Variables ject attains, in addition to meeting minimum pro- Table 1 shows the variables and descriptions for all gram requirements such as project size data sources. The focal independent variables are requirements. Points can be achieved in the areas counts of “traditional” and “green” construction of energy or water efficiency; site and land use industry interest group members normalized by the development; location and transportation; indoor air total number of construction workers in the city. The quality; and sustainable materials and resources. To “traditional” interest group variable is comprised of receive project certification, the project team must members of the Building Owners and Managers apply to the USGBC with the appropriate project Association (BOMA). The “green” interest group vari- documentation and registration and certification able is constructed from the publicly-available USGBC fees. Fees associated with the program vary by member list (USGBC, 2018a). There are 5,648 BOMA LEED program type and project size with registra- members in 1,480 communities and 50,336 USGBC tion fees starting at $1,200 and minimum fees for members in 6,301 communities. To give a sense of building design and construction certification how construction professionals in a community relate between $2,850 and $27,500 depending on project to the total population, in New York City and Kansas size (USGBC, 2019). The USGBC Trademark Policy City, approximately 2% of the total population, or allows project owners to market their buildings as 196,634 and 11,473 people, respectively, works in the “LEED registered” or “LEED certified” based on if the construction industry using American Community building has only been registered or actually com- Survey estimations. Nationwide, BOMA and USGBC pleted the certification process (USGBC, 2018c). members represent a mean of 0.2 and 0.5% of the construction industry, respectively. New York City has Research Design 570 BOMA members and 2,098 USGBC members. Kansas City, MO has 98 BOMA members and 285 Case Selection and Dependent Variable USGBC members. This study focuses on policies that require LEED cer- The Washington, D.C.-based USGBC has a decen- tifications for city-level public and privately-owned tralized advocacy model where regional and local commercial buildings, not market incentives such as chapters have members, as well as paid staff, who expedited permitting or fee reductions. Only LEED provide local technical support and professional certification policies are examined because industry green building services and advocate for green groups are not expected to oppose policies for building, which are core benefits of member associ- financial incentives or goal-setting, as those types of ation (Koski, 2010, p. 102; USGBC, 2019). USGBC policies do not impose cost burdens to industry. members represent a variety of professions and sec- The dependent variable is dichotomously coded for tors, including product manufacturers; contractors whether or not a city has adopted a certification and builders; corporate and retail; education and policy. The source of this data comes from the research institutions; environmental and other Public Policy Library of green building requirements 501(c)(3) nonprofit organizations; governments; 6 J. C. MARTEL Figure 1. Count of LEED certification policies in this study (n ¼ 277 cities). Table 1. Variables, descriptions, and data sources for green building models. Variable Description Dependent Variables Policy adoption or non-adoption Adoption of LEED certification requirements for any buildings; commercial buildings only; public buildings only; or non-adoption. Source: USGBC database, 2018; U.S. Census, 2017 Interest Groups (Focal Predictors) Green business interest group Number of USBGC members in each city normalized by the total number of construction workers in the city. Source: USGBC member list, 2018 Traditional business interest group Number of BOMA members in each city normalized by the total number of construction workers in the city. Source: BOMA directory, 2018 Political and Community Characteristics (Control Variables) Political: Institutions and Ideology Form of government Dichotomous variable for city that has a mayor-council form of government (1) or other form of government (0). Source: ICMA Survey, 2011 Climate commitment Dichotomous variable for city that is a signatory of Climate Protection Source: U.S. Conf. of Mayors, 2018; ICLEI, 2018 Agreement or ICLEI member California Dichotomous variable for city that is located in California Government and Industry Capacity General revenue Per capita general revenue for each city ($1000s). Source: Census of Governments, 2012 City Characteristics and Socioeconomic Conditions Population Logged population of each city. Source: 2016 American Community Survey, 5 Year Estimates Income Median household income ($1000s). Source: 2016 American Community Survey, 5 Year Estimates Education Percent of population over age 25 with bachelor’s degree or higher. Source: 2016 American Community Survey, 5-Year Estimates Problem Severity Energy cost Average cost of electricity (kWh) in each county. Where county data is not available, average cost in the state. Source: Energy Information Administration, 2017 Median housing age Median age of housing stock in the city. Source: 2016 American Community Survey, 5 Year Estimates JOURNAL OF SUSTAINABLE REAL ESTATE 7 finance and insurance; professional firms; trade asso- Using Python, I found all city and state combina- ciations; real estate professionals; and energy service tions in the text, and aggregated the counts of providers (USGBC, 2017a). Members are granted members in each community (BOMA, 2018; access to an extensive library of resources, educa- Shinyama, 2016). tional courses, and can market themselves in the Ideally it would be possible to construct a pooled membership directory (USGBC, 2019). cross-sectional dataset with counts of all construc- Green building policy advocacy is a core activity tion sector interest group members for each city in of local chapters, and many Chapters have historic- each year, but I was limited by time and resource ally organized “State Advocacy Day” at their state constraints for data collection. Consequently, only capitol as an effort to educate and persuade state the most dominant interest groups in commercial legislators to consider green building legislation building policy processes—BOMA and USGBC—are (e.g., USGBC Florida Chapter, 2020; USGBC Texas represented in this research. Chapter, 2019; USGBC, n.d). Considerable policy Political and community characteristics (control advocacy also occurs at the city and county levels (e.g., USGBC Florida Chapter, 2020). The variables) USGBC explains: Various forms of government, such as mayor-council or council-manager structures, are expected to influ- USGBC engages with governments at all levels to help ence several aspects of policy processes such as them leverage LEED and green building strategies to interest group engagement during agenda-setting meet their goal—whether that be reducing climate and environmental impacts, achieving high performing and policy adoption (e.g., Bae & Feiock, 2013; and resilient buildings, or saving money. Through Hawkins et al., 2016; Sharp et al., 2011). Mayor- technical assistance, testimony, written comments, council forms of government are expected to be sign-on letters, direct advocacy, and expert articles susceptible to the influences of dominant interest and resources, we are working every day to advance groups because these executive arrangements are green buildings through policy … USGBC’s advocacy associated with an emphasis on short-term political activities focus on green building certification policies including leadership by example for public buildings gains and political alignment with powerful groups and incentives to drive green building in the private within the city. In contrast, council-manager forms sector. (USGBC, 2020) of government tend to be more tactically focused A recent business news article highlights on policy implementation and thus more responsive Colorado as ran highest in the nation for LEED to technical experts. Council-manager government green buildings, noting contributions of the USGBC types are thought to have a longer-term outlook community in helping to achieve these policy goals with the primary interest of maximizing operational (ColoradoBiz, 2020). efficiency and ease of policy implementation. They BOMA is also an organization with local chapters. are more likely to host stakeholder engagement As clearly stated in BOMA’s policy posi- activities so that a diverse interest groups can help tions statements, to shape public policies (Bae & Feiock, 2013; Daley et al., 2013; Krause & Douglas, 2005). The political BOMA International does not support the adoption institutions variable is dichotomously coded for and implementation of green/sustainable building codes intended to apply to all newly constructed mayor-council (1) or other form of government such buildings, or to all tenant finish-out, additions and as council-manager (0) using data from the major renovations to existing buildings … International City Management Association (ICMA) (BOMA, 2018a) Municipal Yearbook and collected directly from city Based on their explicit policy position, it is websites where data is not found in the yearbook. expected that BOMA’s presence in a community will limit the likelihood of pushing a green building pol- Climate commitment icy agenda forward. To gather counts of BOMA In addition to the institutional structure, the city’s members per city, I used the Python programming commitment to climate protection is likely to influ- language and the PDFMiner library to convert the ence the adoption of green building policies. As it 2018 BOMA Member Directory PDF to plain text. relates specifically to climate protection, a combined 8 J. C. MARTEL measure of two indicators are used to construct the Problem severity climate commitment variable: a dummy code if the Cities with very little building activity may be less likely to adopt modern building policies than cities city’s mayor is a signatory of the Mayor’s Climate Protection Agreement or if the city is a member of with more construction activity. The median age of ICLEI Local Governments for Sustainability (1), other- housing in a city is used as a proxy to represent the wise 0. Additionally, California is included as a building stock in the models. Older median housing dummy variable in these models because it has age is associated with less current building activity been a leader in green building policy advancement and a newer median housing age correlates with with a statewide green building code that cities higher levels of recent construction activity. Further, adopt locally. Almost 30% of localities with LEED the average electricity cost in the county is also certification policies in this study are in California. used as a proxy for problem severity, as places with more expensive energy are likely to seek buildings Government and industry capacity policies that reduce energy usage to lessen the eco- In most cities, the city planning and building nomic burden of building operations. Where department relies on general revenue and/or devel- county-level electricity costs is not available, I use opment permit fees to fund government staff to the average electricity cost for the state. implement buildings policies. Thus, general revenue I collected all Census variables using the Python per capita for each city is used as a measure of gov- program, CenPy, which provides an API integration ernment capacity for adopting new building poli- for retrieving Census data tables into Python for cies, as building permit fee data is not available. data processing, such as formatting and joining Overall, cities with struggling economies may have tables (Wolf, 2018). I used the Social Explorer Data less demand for mandatory green building require- Dictionary to find the unique identifiers for the ments than a thriving city that is working to man- American Community Survey data tables (Social age excessive growth. Further, cities need funding Explorer, 2019). I stored the data in an SQLite data- from general revenue or permit fees to manage the base that is easily loadable as a .db file into the R transaction costs, such as training industry members program for statistical computing (Hipp et al., 2015; on new building practices, associated with new R Development Core Team, 2019). green building regulations (Nelson, 2012). Rare Event Logit Model and Discussion on City characteristics and socioeconomic conditions: Modeling Results population, income and education I use rare event logit modeling to estimate the Cities with larger populations have been found to probability of LEED certification policy adoption be more likely to adopt LEED policies due to having given differences in the presence of trade associ- more resources, such as government staff to imple- ation members across cities (King & Zeng, 2001). ment the policy (Cidell & Cope, 2014, p. 1774; This modeling technique resamples the data to run Kontokosta, 2011, p. 75). The size of the construc- tion industry highly correlates with population regression simulations with all values of policy adopters in each simulation. I selected this method (0.95), so population logged is included in the mod- els to retain consistency with many other policy because of the sparse number of cities that have adopted LEED certification policies (277 cities, or adoption studies. Further, counts of housing units highly correlates with population (0.99) and was 1.4% of cities in the sample; Table 2). In order to understand patterns in adoption, I use a dataset of explored but is not used in these models. People with higher education tend to have higher incomes, permit issuing places for information on non-adopt- which in turn typically results in a higher tax base ers. Of the 20,100 permit issuing places in the to support government initiatives. The percentage United States, 19,579 places have sufficient data to of the population with a bachelor’s degree or be included in the statistical models. I use the Zelig higher as well as median household income for library ReLogit class in the R statistical computing each city are included in the model. program for modeling. JOURNAL OF SUSTAINABLE REAL ESTATE 9 Table 2. Descriptive statistics for green building policy adoption models. No Policy Adopted Policy n ¼ 19,302 n ¼ 277 Statistic Mean Min Max Mean Min Max Green interest group 0.004 0 2 0.03 0.00 0.53 Traditional interest group 0.002 0 19 0.01 0.00 0.29 Form of city government 0.14 0 1 0.25 0 1 Climate commitment 0.04 0 1 0.60 0 1 California 0.02 0 1 0.30 0 1 General revenue 1.61 0.00 953.24 2.43 0.37 80.17 Population 7.19 0.00 14.26 10.91 6.91 15.95 Income 48.56 0.00 250.00 72.46 19.52 243.70 Education 0.13 0.00 1.00 0.25 0.07 0.49 Energy cost 10.97 1.79 39.36 12.59 2.18 27.55 Housing age 1966 1939 2016 1972 1939 2004 Table 3. Rare event logit results from modeling green building policy adoption. Dependent variable: LEED Certification Policy Adoption Full Model Public Model Commercial Model Green interest group 0.13 0.04 0.06 (0.02) (0.02) (0.02) Traditional interest group 0.0004 0.001 0.001 (0.01) (0.004) (0.004) Form of city government 0.01 0.01 0.01 (0.002) (0.002) (0.002) Climate commitment 0.12 0.06 0.05 (0.004) (0.003) (0.003) California 0.10 0.03 0.04 (0.01) (0.003) (0.004) General revenue 0.0000 0.0000 0.0000 (0.0001) (0.00) (0.00) Population 0.01 0.003 0.003 (0.001) (0.0003) (0.0004) Income 0.00 0.00 0.00 (0.00) (0.00) (0.00) Education 0.06 0.02 0.03 (0.01) (0.01) (0.01) Energy cost 0.0002 0.0003 0.0001 (0.0003) (0.0002) (0.0002) Housing age 0.0001 0.0001 0.0001 (0.0001) (0.0000) (0.0000) Constant 0.21 1.20 1.14 (0.10) (0.06) (0.07) Observations 19,579 19,579 19,579 R 0.13 0.07 0.06 Adjusted R 0.13 0.06 0.06 Residual Std. Error (df ¼ 19,567) 0.11 0.07 0.08 F Statistic (df ¼ 11; 19,567) 269.09 123.74 111.96 Note: Standard errors in parentheses. p< 0.1; p< 0.05; p< 0.01. For greatest explanatory power, I developed a The second model has 104 cities that adopted full model that includes cities with LEED certifica- LEED certification mandates for public buildings. tion requirements for privately and publicly owned The third model has 125 adopting cities with man- buildings. Next, I explore how the effects shift dates for privately owned commercial buildings depending on whether the policy applies to pri- (Table 3). The full model has the most explanatory vately owned buildings or publicly owned build- power with an R of 0.13. The public and commer- ings by modeling these two population subsets cial models have an R of 0.07 and 0.06, separately. Each model has 19,579 cities that are respectively. bootstrapped or resampled using the rare event Across all models, green interest group presence logit method. The first model has 277 cities that matters for LEED policy adoption. It is not surprising mandated LEED certification for any building type. that green interest groups—operationalized by 10 J. C. MARTEL counts of USGBC members per 1000 people—is more heavily targeted at public buildings. The com- important since the USGBC is the creator of the LEED mercial building model attempts to isolate policies program and has local association members advocat- that regulate privately owned commercial buildings, ing for policy adoption. This reflects the openness of but these policies could be relatively weak. Builders local political systems where local business interest may be able to easily meet the LEED-certified groups can effectively influence government policy. requirements in some markets, depending on state It also shows how powerful an industry association and local building codes. Rebate programs for can be when they develop a voluntary program that energy and water efficiency and urban design of gains such widespread attention and legitimacy that the cities could make LEED credits such as proximity governments begin to adopt it as a mandatory to public transit more easily attainable. requirement. Holding all other independent variables As expected, the political institutional structure at their means, a one standard deviation increase in and climate commitment are consistent with urban green interest group presence increases the city’s policy theory. Cities with mayor-council forms of odds of LEED certification policy adoption by 14% in governments are more likely to have green building the full model and 4 to 6% in the public and com- policies. Not surprisingly, the indicator with the mercial models (Table 4). most impact is whether the city has demonstrated a Figure 2 shows a less linear relationship between commitment to climate protection as a signatory of green building policy adoption and the traditional the Mayor’s Climate Protection Agreement or a construction industry compared to the green con- member of ICLEI. Cities are 13% more likely to struction industry. The traditional interest group is adopt LEED certification requirements when they not significant, and the effects are very small have committed to climate protection (Figure 3). (0.001 or less). This could be explained as trad- Similarly, given the strong state commitment to itional builders not viewing green building construc- green building, cities within California are more tion as their target market, and LEED policies being likely to adopt LEED certification requirements. Table 4. Odds ratios for green building policy adoption models. Dependent variable: LEED Certification Policy Adoption Full Model Public Model Commercial Model Green interest group 1.14 1.04 1.06 (0.02) (0.02) (0.02) Traditional interest group 1.00 1.00 1.00 (0.01) (0.004) (0.004) Form of city government 0.99 0.99 0.99 (0.002) (0.002) (0.002) Climate commitment 1.13 1.06 1.06 (0.004) (0.003) (0.003) California 1.10 1.03 1.04 (0.01) (0.003) (0.004) General revenue 1.00 1.00 1.00 (0.0001) (0.0000) (0.0000) Population 1.01 1.00 1.00 (0.001) (0.0003) (0.0004) Income 1.00 1.00 1.00 (0.0000) (0.0000) (0.0000) Education 1.07 1.02 1.03 (0.01) (0.01) (0.01) Energy cost 1.00 1.00 1.00 (0.0003) (0.0002) (0.0002) Housing age 1.00 1.00 1.00 (0.0001) (0.0000) (0.0000) Constant 1.23 3.32 3.13 (0.10) (0.06) (0.07) Observations 19,579 19,579 19,579 R 0.13 0.07 0.06 Adjusted R 0.13 0.06 0.06 Residual Std. Error (df ¼ 19,567) 0.11 0.07 0.08 F Statistic (df ¼ 11; 19,567) 269.09 123.74 111.96 Note: Standard errors in parentheses. p< 0.1; p< 0.05; p< 0.01. JOURNAL OF SUSTAINABLE REAL ESTATE 11 Figure 2. Marginal effects of interest groups on predicted policy adoption. increase of one standard deviation in education Green interest group increases the city’s odds of policy adoption by 7%. Traditional interest group Income is not significant (which is not surprising California because it is a measure of household income), General revenue whereas LEED building policies typically affect com- Population mercial real estate, not residential. I had also expected higher energy costs and newer building Income stocks to be more likely to increase the odds of pol- Education icy adoption. While energy cost and housing age Energy cost have negative coefficients, the odds ratios are 1, Housing age indicating that there is no significant difference 1.00 1.05 1.10 1.15 between adopting and non-adopting cities. Odds Ratios As illustrated by the statistical modeling in this Figure 3. Odds ratios for LEED policy adoption. study, the ability to identify distinctive motivations within a type of interest group can help explain While population is significant across the models, how distinctive segments within a business interest the odds ratio of 1 signifies that there is not a sub- affect urban policymaking differently—as opposed stantive difference between cities that have or do to than treating business interests as the same not have LEED certification policies on this charac- across the sector. The traditional industry associ- teristic. The varied population sizes of cities adopt- ation had a negative effect on LEED policy adoption ing LEED requirements could be explained by the while the green industry group had a positive outsourced nature of LEED where a third party—the effect, similar to findings in May and Koski (2007). USGBC—and their members are doing most of the These groups both represent the construction program management and document preparation industry, yet have very different effects on LEED cer- for the program, alleviating the administrative bur- tification policy adoption. den to the government. This could also be why In line with the microeconomic theory that firms general revenue is not a significant indicator of pol- are profit maximizers and will seek market differen- icy adoption. tiation to secure profits, green industry association I had expected that communities with higher members are better positioned to absorb the new educational attainment and income would be more market for green building that is grown by city pol- likely to have LEED certification policies. This expect- icy adoption than their traditional peers, who have ation is met for education but not income. An not distinguished themselves in green building 12 J. C. MARTEL expertise. The green industry association members AHPBC website are product-oriented councils and may be ideologically motivated, realizing that firms associations, each with their own membership pop- can obtain substantial profits while also supporting ulations. The Coalition supports “reasonable per- environmental protection, or they may just be stra- formance based policies” and “voluntary adoption,” tegic profit maximizers motivated to get a share of similar to BOMA’s policy position statement. A sub- a new untapped market. Either way, this study sequent study could model the sums of members in shows that their presence increases the likelihood the 42 industry groups for an estimation of their of green building policy adoption, unlike their trad- effects on mandatory green building policy adop- itional peers. tion at the local level. Regarding effects of the control variables, many were statistically significant but had odds ratios of Conclusion 1, indicating no apparent difference between cities The green building policy arena allows for a careful with or without LEED certification policies. LEED cer- examination of the role that business interests play tifications are most common for commercial build- in the adoption and implementation of sustainabil- ings, particularly office buildings, so demographic ity policies at the local level. This research segments variables might be representing latent concepts interest groups that represent a major industry (con- such as urban development patterns involving con- struction) by isolating traditional and green building centrations of office parks and surrounding residen- interests in order to examine interest group behav- tial developments, or diverse urban core ior in sustainability policy in more detail. development patterns in these cities and towns. Contributing to sustainability research, isolating Controlling for city characteristics that characterize business interest groups into distinct segments is local commercial real estate markets, such as num- conducive to explaining effects on urban policy- ber of office buildings in the city or the competi- making with greater nuance than the more com- tiveness of the local office rental market, might monly taken empirical approach that treats business provide a better fit for modeling LEED policies, but interest groups as one unit. this data is not readily available unless purchased In this study, the presence of green building from CBRE, a company that sells commercial real interest group members matter to LEED policies, estate data for local markets. increasing the odds of a LEED policy by up to 14%, A limitation to this study is that it explores only whereas the traditional building interest group had two industry associations among many groups that very little influence. Because USGBC is expected are involved in influencing building-related policies, thereby to gain a market advantage, it is not sur- and the study cannot discern cross-membership prising that the industry group supports LEED poli- between the two groups. I attempted to select the cies. It is, however, surprising that the presence of most distinctive and influential groups, but without traditional construction industry group members surveying government staff and political leaders or does not have a significant negative effect on the counting testimonies from public hearings it is diffi- presence of LEED certification policies, because pri- cult to validate the selection of the two groups. The vate industry is expected to reject mandatory regu- USGBC is an obvious choice because it is the organ- lations due to potential loss of profits and a ization that developed LEED. BOMA is known to be perceived advantage of such policy benefiting their highly influential and oppositional in building- competitors. related policy adoption processes, according to The policy’s target population—public or com- expert knowledge, and their explicit oppositional mercial buildings—is not a distinguishing factor in policy statement is cited earlier in this paper. Other groups are also influential. An article on why some this study, but theoretically the policy scope is industry groups are trying to ban green building expected to be an important consideration because standards (Badger, 2013) points to the American construction industry groups are expected to be High-Performance Buildings Coalition (AHPBC) as an more likely to support policies that regulate public industry-led coalition opposing LEED (AHPBC, 2018a, buildings rather than private buildings, due to who 2018b). The 42 coalition members listed on the pays the incremental cost for green construction. 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Journal

Journal of Sustainable Real Estate – Taylor & Francis

Published: Jan 1, 2020

Keywords: Urban policy; cities; business interest groups; sustainability; green building

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