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

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.

Studies of the effectiveness and cost effectiveness of policies that focus on end-use energy efficiency are limited. The often cited McKinsey & Company (2009) report identifies a number of building retrofit options with discounted streams of energy savings that more than offset the upfront costs of the improvements. These measures would purportedly yield 12.4 quadrillion Btus in energy savings in 2020, 29 percent of predicted baseline energy use in buildings in that year. The study does not describe or analyze policy options that will bring these changes about, however. A similar comment can be made about a 2010 National Academy of Sciences study (NAS, 2010). Brown et al. (2009) do focus on policies; they look at building codes, energy-performance-rating systems, mandated disclosure of energy use, and "on-bill" energy-efficiency-financing programs, as well as three policies targeted to utilities. The authors estimate energy savings and costs for each option, but these estimates are based on the authors' assumptions and results from other studies, not from detailed statistical or simulation modeling. Krupnick et al. (2010) estimate the costs and effectiveness of a variety of policies to reduce energy use and carbon dioxide (C02) emissions, including four end-use energy-efficiency policies: building energy codes; building energy codes combined with other policies, as specified in the 2009 Waxman-Markey climate bill (H.R. 2454); and two smaller scale policies, one using a subsidy and the other a loan, for the purchase of geothermal heat pumps (GHPs). …

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