Green Retrofits: What Programs Are Most Cost-Effective?

Residential buildings account for nearly 20 percent of total U.S. energy consumption, with single family homes consuming 80 percent of that share. Margaret Walls of Resources for the Future compared the impacts of improving energy efficiency in residential heating, cooling and water heating appliances on CO₂ emission levels and energy consumption. The study specifically addresses the impact of replacing or regulating these appliances, which account for 70 percent of consumption in residential buildings. Efforts to lower consumption and CO₂ emissions have focused on retrofitting and upgrading existing properties because 75 percent of the existing housing stock was constructed before 1990. Older homes present increased energy efficiency challenges because they consume more energy and the upfront cost of retrofitting or replacing major appliances is a major barrier for homeowners. Walls formulates a “welfare cost” of programs to subsidize energy retrofits, which takes into account the related decrease in funding of other social programs, and analyzes the costs and benefits of different policies.

Major findings:

• Loans have the lowest “welfare cost,” but yield insignificant decreases in CO₂ emissions.
• Subsidies and increased standards generate 7 times more CO₂ reduction than loans.
• Increased standards have much lower costs, but do not promote consumer action because they eliminate affordable appliance options from the market.
• Consumer loans and increased standards are less successful because they both inadvertently increase the cost of appliances.
• The loan and subsidy policies provide financial incentives for consumers to change their behavior.
• Energy efficient appliances are more expensive and increasing standards will eliminate cheaper models from the market, which provides homeowners less incentive to replace.
• Subsidies promote consumer adoption of energy efficient appliances, as standards only alter offerings on market.