Academic journal article Cityscape

Comparing Subsidies, Loans, and Standards for Improving Home Energy Efficiency

Academic journal article Cityscape

Comparing Subsidies, Loans, and Standards for Improving Home Energy Efficiency

Article excerpt

Abstract

Residential buildings use approximately 20 percent of the total U.S. energy consumption, and single-family homes alone account for about 16 percent. Older homes are less energy efficient than newer ones, and, although many experts have identified upgrades and improvements that can yield significant energy savings at relatively low costs, it has proven to be difficult to spur most homeowners into making these investments. In this article, I analyze the energy and carbon dioxide (CO2) effects from three policies aimed at improving home energy efficiency: (1) a subsidy for the purchase of efficient space heating, cooling, and water-heating equipment; (2) a loan for the same purchases; and (3) efficiency standards for such equipment. I use a version of the U.S. Department of Energy (DOE), Energy Information Administration's (EIA's) National Energy Modeling System, NEMS-RFF,1 to compute the energy and CO2 effects and standard formulas in economics to calculate the welfare costs of the policies. I find that the loan option is quite cost effective but provides only a very small reduction in CO2 emissions and energy use. The subsidy and the standards both are more costly but generate CO2 emissions reductions seven times greater than the loan option. The subsidy promotes consumer adoption of very high-efficiency equipment, but the standards do not; they lead to purchases of equipment that just reaches the standards. The discount rate used to discount energy savings from the policies has a large effect on the welfare cost estimates.

Introduction

Commercial and residential buildings account for 42 percent of energy consumption in the United States, and residential buildings alone are responsible for one-half of this amount. Building codes, appliance standards, and general technological improvements have vastly improved the energy efficiency of new homes, but older homes lag behind newer homes in efficiency. A home built in the 1940s consumes, on average, 50.8 thousand British thermal units (Btus) per square foot, even with improvements made since it was built. An average home built in the 1990s, on the other hand, consumes only 37.7 thousand Btus per square foot (DOE/EIA, 2008). With 75 percent of the existing housing stock built before 1990, to make a serious dent in residential energy consumption will require policies that target retrofit and upgrade options to existing properties.

Experts have disagreed about the best approaches for spurring homeowners to use retrofit options, and current policy takes a somewhat scattershot approach. Since the mid-1980s, the federal government has set mandatory minimum efficiency standards for a variety of appliances and equipment and, in President Barack Obama's June 2013 Climate Action Plan, he proposed tightening those standards for a number of products (Executive Office of the President, 2013). In addition, the government operates the voluntary ENERGY STAR certification program for equipment and new homes that reach even higher levels of efficiency. Many state and local governments encourage building retrofit options in a variety of ways. Approximately 250 energy-efficiency-financing programs are in operation at the state, local, and utility level (Palmer, Walls, and Gerarden, 2012). These programs provide low-interest loans to consumers (and businesses) who upgrade their properties. The Rural Utilities Service also has long operated an energy-efficiency loan program, implemented by rural electric cooperatives, and President Obama also proposed an increase to this program (Executive Office of the President, 2013). Tax credits, rebates, and direct subsidies have also been available to varying degrees in different locations and at different times; in fact, these financial incentives were key components of the 2009 American Recovery and Reinvestment Act stimulus bill. Also, some cities recently adopted energy-disclosure requirements for commercial and multifamily residential buildings, on the premise that making energy information publicly available will spur improvements. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.