Green Hotels: A Smart Investment

With growing environmental awareness and concern about carbon emissions (greenhouse gases), building a green hotel is a smart investment in the modern world. Green hotels both save money and have a potential for premiums from guests concerned about the environment. This report briefly demonstrates the hard business case for the green hotel by showcasing the green premium – the additional extra rents that can be obtained compared to the cost of carbon emissions controls. It than briefly summarizes carbon emissions reporting practices the hotel will need to meet in order to gain these benefits.

The Green Premium

“Green” hotels refer both to the construction and to the operation of the hotel in such a way as to control the carbon emissions resulting from its operation. Green construction standards for hotels include construction to the LEED standard, an environmental building standard that controls and measures carbon emissions from a lifecycle perspective. Hotels can also control their environmental impact (including carbon emissions, water, and waste) through a variety of other mechanisms, including reducing sheet and towel changes, occupation sensors, in-room recycling, energy-saving bulbs, low-flow plumbing fixtures, and so on. The costs and benefits of these mechanisms vary.

Green Hotel

Green Construction

One of the largest costs involved in operating a new hotel is likely to be the construction cost, and it is here that one might expect to have an excess cost for green mechanisms rather than conventional mechanisms. However, the evidence does not support this assumption. Instead, studies have shown that LEED certified projects – even those that have higher emissions ratings such as Silver or Gold – have at most a 1% to 2% cost premium compared to traditional construction. Most LEED certified projects do not even have this level of cost increase, and an increase in the number of green buildings constructed brings the price down considerably.

Green Operation

Operating costs of green buildings generally are lower than conventional buildings by 23% to 28% on average. These operational savings stem from a reduction in the energy and water bills. Potential savings include:

The specific savings varies widely, depending on the cost of water and the arrangements for solid waste disposal, but in any operation these savings will be significant. Even if there is no price premium to be gained from customers, operational savings result in an increase in ADR of $1.80 to $3.00 for limited-service hotels and $4.00 to $6.75 for full-service hotels.

The green hotel may not result in an explicit premium for hotel rooms, but instead guests may be willing to pay the standard rate for hotel rooms despite a perception of reduced service. This is relevant because many of the operational choices of the green hotel are oriented toward service reduction, rather than facilities-based interventions. Some of these service reductions include:

In general, guests do accept these service reductions, although some (including sheet and towel changes) are more popular than others (refillable toiletry dispensers), according to Millar and Baloglu’s study. A precise estimate on the cost savings associated with these interventions is not available, but it is likely to reduce supplies and laundry costs as well as water and energy costs.

Green Hotels - The Bottom Line

The main savings in the green hotel do not come from a guest premium. In fact, guests may perceive the green hotel as having a slightly reduced service level as compared to the traditional hotel. However, guests are generally willing to pay the same daily rate at a green hotel as at a traditional hotel, because of perceptions about the importance of the environment. The main increase in ADR comes instead from operational savings resulting from construction and operational choices. Table 1 compares the costs and savings associated with the green hotel, based on the available information. This compares a hypothetical, newly constructed 100-room hotel with 80% occupancy rates. It shows that the potential savings could be substantial for the green hotel, while the construction costs are relatively low. The construction cost increases by a maximum of only $20,000 (and probably less than this). The cost savings premium on the ADR (calculated at a conservative rate) is $116,800. Thus, the cost savings associated with the green construction and operation of the hotel is about five times the construction cost premium for the green hotel in the first year alone, even using conservative figures. Although the specific rates for a given hotel will vary, especially depending on the extent of cost savings that can be achieved, this example shows that green construction and operation of the hotel has a hard business case.

Traditional HotelGreen Hotel
Construction Costs$1,000,000$1,020,000
One-year room earnings (80% average occupancy rate)$2,920,000$3,036,800

Table 1: Comparison of traditional and green hotel costs across a hypothetical 100-room hotel

Carbon Emissions Reporting for Green Hotels

Green hotels do have an additional requirement in that they do require carbon emissions (greenhouse gas) control and reporting, in order to maintain the green brand image. Since the main source of greenhouse gas savings is in the construction of the building, LEED certification is the first step. Carbon emissions certification can then be accomplished in other ways. While “green hotel” is not a certified or controlled designation, demonstrating active commitment to the environment to guests is likely to result in improved brand reputation.

Since most of the emissions savings in the green hotel will come from the design and construction choices, the construction standard is the most important certification step. LEED (Leadership in Energy and Environmental Design) is an environmental certification managed by the US Green Building Council. LEED certification is a standard certification based on the level of environmental controls and the total environmental impact of a new construction building (US Green Building Council). LEED certification will specify the level of water, energy, and carbon emissions savings the building can expect to achieve given its normal operation requirements (US Green Building Council). This means that the green building constructed under LEED is designed to meet specific requirements for environmental impact. Environmental impact is identified under sustainable sites, water efficiency, energy and atmosphere, materials and resources, and indoor environmental quality, as well as a number of bonus categories. Points or credits are awarded for each implemented design choice that falls into one of these categories. Typically, the building would be pre-designated for a construction quality level (Silver, Gold, or Platinum), and would then be constructed to that level. Post-construction inspection is then used to ensure that the construction of the building met the requirements before the building is certified. LEED certification can also be undertaken on renovation or rehabilitation of existing buildings, using a slightly different set of criteria (US Green Building Council).

Hotels that were not constructed under LEED requirements, or that have been significantly modified since their construction, can still calculate (and if necessary offset) their emissions using a carbon emissions certification program. One such program is managed by the Carbon Trust. The Carbon Trust manages several emissions and environmental impact certification programs, including the Carbon Trust Standard, Carbon Footprint Label, Carbon Trust Water Standard, and Carbon Trust Waste Standard (Carbon Trust). The Carbon Trust will verify and certify emissions in these areas and train staff members to ensure the hotel retains the certification. The Carbon Trust certifications also provide additional information for consumers. For example, the Reducing CO2 carbon label shows that the business is actively engaged in carbon emissions reduction, while the CO2 Measured label shows that it has been assessed for carbon usage. This is a valuable certification program that would be useful particularly for older hotels, although it may also provide more information for LEED-certified hotels. There are a variety of available certification programs from the Carbon Trust that are likely to meet the need of any property. Thus, this is the recommended route for greenhouse gas emissions certification.


Butler, Jim. "The compelling "hard case" for "green" hotel development." Cornell Hospitality Quarterly.

Carbon Trust. "Certification."

Kim, Y and H Han. "Intention to pay conventional-hotel prices at a green hotel – a modification of the theory of planned behavior." Journal of Sustainable Tourism.

Millar, M and S Baloglu. "Hotel guests' preferences for green hotel attributes." Hospitality Administration and Management Commons.

US Green Building Council. "LEED."