Commercial Construction Cost Increment Analysis

Determining the Cost of Building to ASHRAE Standard 90.1-2007

This document was originally published in February 2010.


One of the Building Codes Assistance Project’s goals is to help policymakers understand both the pros and cons of adopting an energy code in their state or jurisdiction. As an independent judge of the efficacy of energy codes, we also strive to use data and case studies to address energy code barriers, such as real or perceived construction costs incurred by code changes. One such barrier to energy code adoption is the concern from some in the building community that upgrading to the latest version of the commercial energy code, ASHRAE 90.1-2007, will result in cost-prohibitive increases in construction cost. After examining available data, BCAP has found that no definitive analysis or study has exhaustively calculated the commercial cost increment for all 50 states. However, emerging studies, particularly a recent New York state analysis, anecdotally demonstrate that upgrading the commercial energy code may result in some construction cost increases which are offset by energy savings within a few years of project completion.

Commercial Incremental Cost Background

This analysis was undertaken in response to claims lodged by some in the building community that upgrading the commercial energy code to the most recent and advanced version of the code (ASHRAE 90.1-2007) will be cost-prohibitive for builders and building owners. Amidst other negative economic indicators, including high unemployment, lower wages, and an increasing cost of living, this claim has gained traction amongst builders, advocates, and policymakers, causing the adoption of the latest commercial energy code to run into resistance. In light of this debate, the need to document what incremental costs increases (if any) exist for commercial buildings is essential. It is our hope that incremental cost information will empower decision makers about the costs of moving to current commercial building energy codes, enabling them to make decisions about those issues when they consider the adoption of a new code or code provision. The stakes in this debate are high, as the energy use (and possible energy savings) from the commercial building sector are considerable. According to the Energy Information Agency, commercial energy use in 2008 accounted for almost 19%
of total energy use throughout the country, and over the last decade the sector has been the second fastest-growing source of energy consumption in the United States.

Incremental Cost and Payback in New York State

While the question of added cost is up for debate, numerous studies unequivocally show that upgrading the commercial energy code to ASHRAE 90.1-2007 will save energy. One such study, recently released by the US Department of Energy (DOE), Cost-Effectiveness and Impact Analysis of Adoption Standard 90.1-2007 for New York State, analyzes the first costs and energy savings in the state of New York should it adopt the latest ASHRAE code.

To measure construction cost changes from the 2003 IECC to 90.1-2007, the report modeled construction cost for three standard commercial building types that are representative of commercial construction in each of the state’s three climate zones. The report concludes that for New York to transition commercial buildings from 2003 IECC to the 90.1-2007 code would result in a construction cost increment increase of no more than 5% for all building types throughout the state, inclusive of all three climate zones. The report also makes clear that costs will vary based on the type of commercial building considered. For instance, for semi-heated buildings (such as warehouses and flex space) the construction cost increment is estimated to be zero. For non-residential commercial space (which includes office buildings) the cost increase averages 4.4% between the state’s three climate zones. For a 54,000 square foot office building, this cost increase would translate into an added cost of $23,482 per building.

Although these first costs are significant, the study estimates that building owners and operators will achieve significant energy savings that allow them to quickly recoup construction cost increases. For instance, in two of the three climate zones within the state, the payback period on the incremental cost is only 4 years. In the third climate zone—which is based on notoriously expensive New York City construction costs—the payback period is 8 years. These payback periods are estimated based on 2007 fuel costs; if energy costs increase, the payback period will be shorter. It is also noteworthy that the authors may overestimate the payback period’s duration by using a conservative simple payback model. This type of payback model fails to capture the reality that building owners are able to amortize the initial construction cost increases over the life of the building loan (known as “Life Cycle Costing”, with the life cycle being the length of the loan, in this case) and pay these loans back over time with energy savings.

Incremental Costs and Annual Energy Savings for New Office Buildings in New York State


Initial Incremental Cost

Annual Energy Savings

Climate Zone 4A



Climate Zone 5A



Climate Zone 6A



Building Performance Precedents

The case for 90.1-2007 construction costs being offset by energy savings is supported by a building performance case study created by the New Building Institute. The New Buildings Institute analyzed a commercial bank branch and office building that was built to a standard higher than ASHRAE 90.1-2007. The building, a Fidelity Bank Office in Leominster, MA, was built to Core Performance guidelines, a standard which is equivalent to 31% over 90.1-2004 ASHRAE code. While the construction cost increment was significant ($100,622, or $2.15 per square foot) the 47,000 square foot building saved $27,600 in energy costs per year over the existing code—a 31% energy savings over baseline code, which exceeded the 20-30% savings estimated by the building designers. The building’s simple payback is estimated at less than 4 years, a payback period similar to the 90.1-2007 code modeled by DOE in New York State. According to the bank, by including utility incentives the bank’s return on investment will be realized in less than two years.

Other Statewide Precedents

Although incremental first cost studies for additional states to move to the current code (90.1-2007) are unavailable, other preexisting studies demonstrate that ASHRAE energy code upgrades have a track record of delivering energy savings with modest or nonexistent first costs increases. This is likely because the ASHRAE 90.1 Development Committees examines construction cost changes when considering code upgarades, and consider those with favorable cost/benefit. One such study, released by DOE’s Pacific Northwest National Laboratory (PNNL) reviews incremental first costs for previous ASHRAE versions in the city of New Orleans, Louisiana. The study, Analysis of Energy Savings Impacts of New Commercial Energy Codes for the Gulf States, concluded that annual energy cost savings after upgrading from the prior ASHRAE Standard, 90.1-2001 to 90.1-2004 were between 7% and 14%, depending on the building type.

According to the study, not only did the code change save energy in all building types modeled, including offices, schools, retail, and hospitals, moving from the 90.1-2001 to 90.1-2004 code resulted in lower up-front construction costs. The construction cost savings provided by 90.1-2004 saved builders between $31,000 and $363,000, depending on the building type. In the case of the upgrade from 90.1-2001 to 90.1-2004, the incremental cost decreases were in large part due to the new requirements for lighting commercial buildings. These requirements carry with them design standards that took advantage of more efficient lighting and often employ considerably fewer fixtures, resulting in considerable equipment cost savings. Although no study was completed regarding incremental costs of moving from 90.1-2004 to 90.1-2007, this analysis demonstrates that first cost savings may again be substantial if the new ASHRAE 90.1-2007 standard is adopted in other states.

Total Incremental Cost For New Commercial Buildings: Standard 90.1-2001 to 90.1-2004 in New Orleans, Louisiana






Total Incremental Cost





Conclusion and Directions For Future Research

From these limited examples we can conclude that the energy savings from adopting current ASHRAE standards will help cities and property owners reduce their energy use and costs. Also, these studies provide anecdotal evidence that where incremental costs are incurred by an upgrade to 90.1-2007, these costs are absorbed in a short period of time by increased energy savings. However, the paucity of research and data on incremental construction cost argues that these findings should be considered preliminary and that additional research is required.

Future research should be focused on creating incremental cost estimates for all climate zones in the U.S. Emphasis should also be placed on documenting building construction cost and pairing this data with actual building energy performance. To create reliable construction cost estimates, there is an acute need for detailed data on construction costs. Some data has been developed by ASHRAE itself – although manipulating this data into useful construction cost increment projections will require additional data and considerable analysis.

BCAP recommends a coordinated effort to summarize ASHRAE and other data by a third party organization or committee. Such an “arm’s length” analysis would dispel concerns by ASHRAE officials that the data might be susceptible to criticism from code change opponents. Simultaneously, putting construction cost data in the public domain would allow proponents and critics a foundation for debate grounded in robust, factual analysis.