Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Economic Evaluation on Green Architecture System Luo Fuzhou Liu Xiaojun Tang Xiaoling School of Management Xi’an University of Architecture & Technology, P.R.China, 710055 Abstract It should be very important to properly evaluate the economic effect of green architecture system. The authors study the applicability of cost-benefit evaluation approaches on the green architecture system, in order to establish a system with high efficiency, good circulation and lower pollution under the guideline of sustainable development of social economy. Key words Green architecture, Benefits, Costs 1 Introduction It is necessary to evaluate the situation and changing economic effect of the green architecture system, in order to estimate its influence on the economic activities of human society, to evaluate technical alternatives for architecture with consideration of environmental factors, and to put forward measurements for establishing the green architecture system. Modern economics has provided the evaluation of green architecture system with a set of useful and optional methods for analysis. From the view of macroeconomics, man could not reduce the risk of pollution to zero because of the material benefits of modern economic system. Man should produce substance for survival, and even enlarge the production and develop for better living. Under particular technical conditions, however, the more production human has, the more pollution there is. Therefore, man must make his choice between the economic benefits and pollution, with proper analyzing methods in which cost-benefit evaluation would be a useful one. From the point of architecture, habitation is one of the basic needs for human survival. Within a period of particular technical and economic conditions, it is inevitable that modern buildings, with high-rise, high density, high energy consumption and high evacuation, would have negative influence on the environment, resources, landscape of cities, and physiology, psychology, culture and arts of human being. Therefore, man should make decisions between green architecture with lower pollution, high efficiency and good circulation, and isolated buildings with large areas of reinforced concrete. 2 Static Cost-Benefit Analysis The criterion in economics, for selecting from alternatives of resources allocation at the same time, is called static efficiency. The resources allocation is satisfied the criterion means that it makes the maximum net benefit from the allocation of resources. The benefit could be gotten from the demand curve of a particular resource, showed in Fig.1. The demand curve is defined as the relationship between the price of the good and the amount or quantity the consumer is willing and able to purchase in a specified time period, given constant levels of the other determinants—tastes, income, prices of related goods, expectations, and number of buyers. Each point on the curve represents the amount of money that consumer is willing and able to pay for the last unit of the good or service. So the total amount of money paid by consumers for n units of the good is the sum of the money that consumer is willing and able to pay for the first, second, …, and the nth unit of the good. Suppose the demand curve is continuous, the total amount would be the area from 0 to n under the demand curve. And we defined the total amount of money willingly paid as the total benefits. We could show the opportunity cost in the same diagram. There is always opportunity costs for the environmental resource even without investment of human resource or matter. The opportunity cost of a resource means the value of the next-highest-valued alternative use of that resource. For example, the landscape of Three Gorges could be famous scenery for appreciation, or the waterpower could be used for generating electricity. However, these two functions would not be compatible because generating electricity needs to build dams which would ruin the natural landscape. Therefore the opportunity cost for generating electricity is the wreck of natural scenery. The marginal cost curve usually represents the additional opportunity cost of producing just one more unit of output. In a pure competition market, the Price Supply Demand 0 Quantity marginal opportunity cost curve is equal to the supply curve. Figure 1 The total cost is the sum of marginal cost, which means all the amount of producing from the first to the last output. Suppose the marginal cost curve is continuous, the area under the curve and from origin to n would be the total cost. Net benefit is the part deducting the total cost from the total benefit. As shown in Fig.1, the net benefit is the area under the demand curve and over the supply curve. Pareto optimality is the most efficient allocation of resources, which is also the output maximizing the net benefit. Obviously, the most efficient allocation of resources occurs when the marginal benefit is equal to the marginal cost. Allocating resources of green architecture by market system is the most efficient way, as the prices of the resources exist, whereas the private firms would make decisions just according to the private costs, not the public costs, as the market system is invalid. For example, a high-rise building in a city with famous history, would be great potential profits coming from the high plot ratio for the real estate developer, whereas it would be large costs caused by the destroy of scenery and the tourism for publics. Public decision-making hereby should consider the total social costs. The total social cost for establishing green architecture system is the total opportunity cost for the publics engaged in the activities, which is equal to the private cost plus the external cost. Social Cost = Private Cost + External Cost The external cost means the social cost caused but not undertaken by the private activities. For example, it would be a part of the social cost that a high-class apartment built on a green lot of a city causes damage to the public space for entertainments. The cost would be the external cost because it is not undertaken by the developer. The total social cost and the marginal social cost must be taken into account for making proper decisions for the publics. Marginal Social Opportunity Cost (MSOC)=Marginal Private Cost (MPC)+Marginal External Cost (MEC) The marginal social cost curve is the social supply curve which is equal to the social cost for producing just one more output. The total social output is decided by the social willingness to pay (WTP) that is the expected social benefit from producing just one more output -- the marginal social benefits which equals to the marginal private benefit plus or minus the marginal external benefit. MSB = MPB +/- MEB MSB stands for the marginal social benefits, and MPB for the marginal private benefit and MEB the marginal external benefit. For example, the MEB would be plus if MSB of education is larger than MPB. MSB is generally the demand curve which represents for the social willingness to pay of purchasing just one more output. MSOS = SS MSB = MWTP = DS MWTP stands for the marginal willingness to pay, and DS for the demand of society, while SS stands for the supply of society. DS and SS will decide the equilibrium price that is the social full cost price. The marginal external cost could be further divided into the marginal user cost and the marginal environmental cost, thus the marginal social cost comprises the marginal private cost (MPC), the marginal user cost (MUC) and the marginal environmental cost (MEC’): MSOC = MPC+MUC+MEC’ The marginal user cost means the cost of using non-generation resources now instead of remaining for future generations. It is necessary to take into account the social demand and supply for determining the full cost price of green architecture system, which would not equal to the private demand and supply. And the private cost (SS’) and the social net benefit are always lower than the social cost (SS) and the private net benefit respectively, while the environmental pollution exists, as shown in Fig.2. The private firms would decide to produce more output with pollution for the same reason, and thus increase the resources wasted and environment polluted. Price SS SS’ Supply Demand 0 Quantity Figure 2 3 Dynamic Cost-Benefit Analysis The static cost-benefit analysis is very useful for selection from different resource allocation alternatives if the period under consideration is very short or the time factor is not very important. The problems in reality, however, are involved in far future so that the allocation alternatives should be compared on the different time points. For example, with the time goes by, the contamination would accumulated, non-regeneration resource would decrease once being developed, and over-consumption of regenerative resource would influence the speed and quantity of regeneration. All of these would affect the future of human being. It is necessary to analyze alternatives occurring in different time with the dynamic cost-benefit approach to evaluate the influence of time. The most widely used method is the net present value method, which is to calculate all cash flows over time back towards the current point in present time with an discount rate to adjust for time and risk, and result in the net present value (NPV) by subtracting the initial investments. n NPV = ∑ i =0 Bt (1 + i ) n In the above formula, i stands for an interest rate or discount rate, Bt stands for the net benefit at t point. We can define the dynamic cost-benefit analysis with the concept of discount rate. An allocation alternative of resource over several terms is efficient if its NPV is largest among all the other alternatives. For instance, if given: (1) the marginal cost for developing green architecture is constant, say RMB4 per unit; (2) the resource quantity of supply over two terms is constant; and (3) the demand function over two terms is constant, showing in formula p=16-4q, in which q stands for the developing quantity. If the total supply quantity of resource is 60 or more, then the efficient allocation is to develop 30 each in the two terms. The supply would satisfy the demand of two terms that the development in the first term would not affect that in the second term. Under such circumstance, the static cost-benefit analysis could meet the need for solving the problem because time is not an important factor for decision, as shown in Fig.3. If the total supply quantity is lower than 60, say is 40, the scarcity of resource over two terms will occur and it is necessary to solve the problem with the dynamic cost-benefit analysis. Price Price 4 MC 0 4 Quantity MC 0 Quantity The First Term The Second Term Figure 3 Suppose we randomly select the quantity of the first term is 30, and the next one is 10, how should we calculate the NPV for the allocation? The present value of net benefit for the first term is the area between 0 to 30 and under the demand curve and above the supply curve, that is, (1/2) X (16-4) X 30=180. The present value of net benefit for the second term is the area between 0 to10 and under the demand curve and above the supply curve, divided by (1+i), and suppose i = 10%, then the present value of net benefit of the second term is: (1/2) X (16-4) X10 / (1+10%)=54.55. Therefore, the total present value of net benefit is equal to 234.55. Although we can calculate the NPV, is the allocation above an optimal one? How can we find an optimal allocation? Of course, we can calculate all the NPV for each alternative with different quantity of the first (q1) and second (q2) terms, and select the largest one. But man could find much easier way to solve these problems in the light of principle of economics. The efficient dynamic allocation of resource should meet the condition that the present value of the marginal net benefit for the first term is equal to that of the second term, as shown in Fig.4. Marginal net benefit for the first term Marginal net benefit for the second term Marginal NPV for the first term 12 Marginal NPV for the second term A Quantity for the first term 10.91 B 0 10 40 30 C D 20 20 30 40 10 0 Quantity for the second term Figure 4 The line of the marginal NPV for the second term is not symmetric with that line for the first term since the one for second term should be discounted with an interest rate. The intersection point of the line in the second term and the right vertical axis, therefore, is lower than the point of that line in the first term and the left vertical axis. If the discount rate is 10% and the first quantity is 0, then the second NPV will be 12 / 1.10 = 10.91. The line of the marginal NPV for the second term will intersect the horizontal axis with the point of 30, as the second quantity 30 will make the net benefit and hence its present value zero. So a higher discount rate will make the line of marginal NPV for the second term rotate around the point (0, q2=30) and become more flat. Thus, the intersection point of the two lines of marginal NPV in two terms will be the optimal point of allocation. The total NPV will be the area under the left line plus that under the right one of that intersection point. The total NPV, that is, the area of A+B+C+D, would be maximized by the efficient dynamic allocation alternative. The discount rate would affect the marginal user cost and the allocation of resource between the two terms. A discount rate above zero would make the quantity of the first term larger than that of the second one. If the discount rate above 0.10, the second line of marginal NPV will even rotate right so that the first quantity will increase while the marginal user cost decrease. Therefore, the increasing of discount rate will result in the decreasing of future weight and the increasing of the developing quantity in the first term. 4 Conclusion From the above discussion, we would have conclusions that the cost-benefit analysis could be applied to the evaluation of establishing green architecture system, and take the total social cost into account for public decision-making. Furthermore, dynamic cost-benefit analysis should be used when the alternatives of resource allocation involved long terms or over time. References [1] Mattew D. Adler. Cost-Benefit Analysis, Static Efficiency, and the Goals of Environmental Law. Boston College Environmental Affairs Law Review, 2004, 31(3): 591-606 [2] Liu Qibo, Zhou Ruoqi. Study on Regional Evaluation of Green Residential Area Construction. Architect, 2003, 01: 44-47 (in Chinese) [3] Wang Zhu, He Yong, et al. Study on Evaluation Tool of Green Settlement. Journal of Zhejiang University (Engineering Science), 2002, 36(6): 659-663 (in Chinese) [4] Zhou Ruoqi, Zhang Shuping, et al. Green Architecture. Beijing: China Planning Press, 1999.6 (in Chinese)