The big budgets being talked about for the transition require us to decide how much to spend, and on what. Maximilian Auffhammer at the Energy Institute at Haas explains why he thinks a lot of the money being earmarked for buildings renovations would be better spent elsewhere. By the time the renovation wave has successfully “reached the shoreline” in the next few decades buildings will be powered overwhelmingly by clean grids (that’s the plan, right?) So the reduction in energy waste will have no effect on emissions. Renovations are going to be very expensive: isn’t it better to spend that money on clean energy, bringing that clean grid finishing line closer? Electrification and anything that cuts fossil fuel use makes sense. But deep renovations? And at what price? “Comfort”, often cited as another reason for renovations, is poor justification. When the aim is to have the same temperature and humidity as before there’s little change in comfort, says Auffhammer. He also points to past attempts to subsidise renovations and the poor uptake by households, along with research suggesting the efficiency savings are often exaggerated. Noting that low-income housing is the most energy inefficient, Auffhammer wants renovation budgets to prioritise building new, energy efficient housing near public transportation infrastructure.
Let me just come out and say it. Phew! Sanity in environmental policy is on its way to being restored. The Biden administration has not only managed to vaccinate 67 million Americans in under 100 days (I will be back at those Costco sampling stations in no time!), but across the board there are efforts underway to fix the consequences of broken markets from sea to shining sea. Our own master blogger and all star economist Catherine Wolfram is hard at work as Deputy Assistant Secretary for Climate and Energy Economics at the Treasury. Basically our entire graduating class of Ph.D. students has accepted jobs in DC.
The efforts underway range from significant headway in global climate policy, to renewable energy policy, regulation of public lands, protecting our waters and coastlines to name but a few. What is great about the current push is that the administration is using good old Keynesian stimulus thinking during a time when interest rates are essentially zero, leaving little room for monetary policy.
They are pointing that hose of government money straight at the energy sector – in the hopes that it will both make the economy greener and cleaner and generate lots of jobs – as we need folks to get back to work after this horror show of a year.
Buildings Renovation: a costly way to reduce emissions
While reading through the policy proposals – and again, I liked most of them – I nearly choked on my popcorn when I saw that we are going to try to retrofit 4 million buildings. I understand that fixing up homes of course requires lots of labour from contractors, and quickly injects capital into many local economies.
The rationale is that it will also save a lot of energy. But…. we tried to do this last time around. We have solid evidence from a gold standard randomised controlled trial (which is the way we learned that the COVID-19 vaccines work), showing that most folks don’t necessarily jump on the opportunity to get their homes retrofitted – even when it’s free to them. Further, the costly retrofits don’t save nearly as much energy in practice as engineering calculations suggested and are a very expensive way to reduce the emissions of greenhouse gases.
Why renovate buildings that will one day run on emissions-free grids?
Further, I just don’t understand why this should be a priority currently. If you take the long view, we are going to take a swing at making renewables + storage so cheap that fossils will only come online when it’s really hot or really really really cold. This switch to a close to carbon neutral grid is going to be plenty expensive and will generate a significant number of jobs in the short and medium run. Building retrofits are a bet on a complementary long view – namely driving down the energy demand from those buildings over a similar horizon.
Whether one believes that most electricity will come to us at or close to zero marginal cost generated by gadgets that have no carbon footprint and no emissions of local air pollutants or not – these retrofits need to “beat” the very low long run cost of renewables. So if electricity will be cheap and clean, why spend so much money on something that we know does not achieve its stated goal and in the long run may not really be needed? The answer I got from my even further to the left set of friends and energy nerds is: comfort. A properly sealed house is so much more comfortable. So I wanted to try this out.
Is “comfort” a good enough reason?
My house was built in 1946. It’s a typical California Rancher. 1,500 square feet of wooden sticks, crappy dry wall, all lacking insulation. As we are not spending money on vacations, I called my contractor and he said my best bet would be to put a foot of cellulose (blown in) insulation into the attic and insulate my floors from underneath with the pink fluffy stuff that makes you itchy, plus put a vapour barrier under the house (which really is just a big sheet of plastic to prevent humidity from leaking into the house). So we did this. The cool thing about my house is that I have installed three outdoor high frequency weather stations, and an indoor high frequency temperature and relative humidity sensor (which I had used for a very cool paper). I also like numbers.
So I recorded my natural gas consumption (I have a natural gas furnace) for the two weeks before the installation and the two weeks after the installation along with temperature indoors and outdoors to see what happened. I then fired up my old trusty computer and chased this through my statistical software.
What I found surprised even me! My natural gas consumption went down by 0.58 therms per day. That is a 25% decrease! What was even more surprising is that my electricity consumption went down by 4.55 kWh per day, which is an 18% decrease! So that is pretty good. And I felt amazing about myself.
If I kept up these savings for the heating season, I would save 58 cents per day on gas. The electricity consumption savings are tougher to calculate. The savings here come from the natural gas heat not turning on so frequently requiring a fan to blow the hot air around the house. The real savings probably do come from the fact that I stopped running the electric space heater in my office. But let’s call it a dollar a day, bringing me to somewhere around 400-500 dollars a year in savings. That is a payback period of 12 years. Not great, yet not terrible. But if you understand science, you should ignore my calculation and read about what Catherine and Meredith did with their weatherisation RCT, which gives you credible causally valid numbers.
But am I more comfortable? I am not so sure. When I look at the temperature measurements indoors and measures of relative humidity, things are exactly the same as before. Statistically. With data. No matter how I slice and dice the data. I also surveyed the members of my household to see whether they detected any differences in comfort. The answer was a solid “maybe – but I’m not sure”. But it definitely was not a resounding yes. And in order for this increase in comfort to be welfare improving, one should feel it.
There are better ways to spend the climate budget
So what’s the takeaway? Max is going to make his money back in a decade or so and the climate is better off as Max is burning less natural gas and using less electricity. At a high cost. You’re welcome. But Max is well paid and lives in a very nice neighbourhood. What about folks that are not as well off and live in much lower quality housing stock?
I question whether energy efficient building retrofits are the best use of scarce public dollars. I would argue that meaningful rate reform would probably be a much more effective way of addressing inequalities while affecting a much larger population than the proposed retrofits. But what about all of those construction jobs, Max? Why don’t we point the Keynesian hose at building new, energy efficient, possibly low income housing near public transportation infrastructure instead? Seems like a much smarter bet than trying to push retrofits on folks, who are not very excited about them.
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Maximilian Auffhammer is the George Pardee Professor of International Sustainable Development at the Energy Institute at Haas, part of the University of California, Berkeley.
This article is published with permission
Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas
Katie T says
As you say, it is low income housing that is often most inefficient. A key argument you miss in favour of renovation is based the fact that renovation reduces energy consumption and therefore energy expenditure: renovations have the power to rescue energy poverty. The poorest in society find a dollar a day a much bigger saving than the richer members.
Building new homes will also cost more than renovating the existing ones, while also taking up massive amounts of land. At the same time, failing to tackle runaway energy demand, unimpeded by huge energy inefficiency, we will require more renewable energy infrastructure, which will both require greater investment in the transition and take up more land valuable for biodiversity and farming.
“Most folks don’t necessarily jump on the opportunity to get their homes retrofitted – even when it’s free to them.” Agreed. that’s why you need to make it mandatory, perhaps through requirements for rental housing which ratchet up over time and encourage landlords to renovate their private housing stock, or by adding requirements to the sale of homes (with lead in times and assistance to homeowners to boot). Then you have the European approach of mandatory, traffic light-style energy efficiency ratings.
“I question whether energy efficient building retrofits are the best use of scarce public dollars.” These are investments, not costs alone. We should raise revenue for these changes from taxing polluting activities and concentrated wealth – leftie for you 🙂
If we want a cost effective transition, we need renovation.
Jean-Sébastien Broc says
1) You cannot compare the use of RCT as it is done in health sciences, and as it has been done to evaluate energy savings impacts. The evaluation of WAP you mentioned has raised debates. See a summary here on this case study: https://epatee.eu/system/tdf/epatee_case_study_us_weatherization_assistance_program_ok_0.pdf?file=1&type=node&id=85
So you cannot pretend that the study done by Fowlie et al. would be THE truth. It indeed showed that some issues deserve more attention. However, it has not at all demonstrated that WAP would have no impact.
2) The actions evaluated in this study are not “deep retrofits”. They are mostly low-cost actions (weatherization actions). So this is not a good example.
3) There is indeed a growing body of literature showing that energy savings from building renovations might be overestimated, depending on the method used to estimate them (cf. prebound and rebound effects, performance gaps, etc.). As explained here for example: https://epatee.eu/sites/default/files/files/epatee_topical_case_study_comparing_estimated_vs_measured_energy_savings.pdf
However, there is also a growing body of literature showing with measured data that well-conducted deep renovations do deliver large savings at a very reasonable cost, especially when considering the whole lifecycle.
Dominik Lenné says
Can you give a decarbonization cost value in the form of €/t_co2 or $/t_co2?
Jean-Sébastien Broc says
4) One should not mix up gross and net energy savings. It can for example happen that net savings from a policy are small due to high free-rider effects. However, it does not necessarily mean that the energy efficiency actions implemented would not deliver energy savings. It simply means that these energy savings would have been achieved anyway.
5) It is clearly an illusion to believe that clean energy could substitute all the fossil fuels that are used for the moment. If the energy consumption from buildings is not decreased significantly, then there would be a stronger competition in the use of clean energy between different sectors (e.g., buildings, transport, industry). And the needs in new energy infrastructures (networks, storage) would then also be much higher. Creating a higher pressure on resources and the environment (e.g., land use).
6) While prioritizing efforts on new buildings is very relevant for countries in Asia or Africa, when most of the building stock is yet to build. This is absolutely not the case in countries in Europe and North America where most of the building stock of 2050 is already here today.
Jean-Sébastien Broc says
7) The cost-effectiveness assessments mentioned in your examples have a very narrow scope. I could agree with the argument that deep renovation is rarely profitable for a building owner. And that’s exactly why a public policy is needed: because it delivers large benefits from a society’s point of view, but not directly at the individual investor’s level. About a larger scope of assessment, see for example: https://www.mdpi.com/1996-1073/12/14/2798
8) One of the good examples of these multiple impacts is job. You mention jobs created by the development of clean energy. But an increase in the renovation rates also creates large amounts of jobs, that cannot be relocated (unlike the production of solar panels for example).
9) Your point about comfort is also very subjective. You take the example of someone who can afford to pay a higher energy bills to meet his comfort expectations. But there is a very large (and unfortunately, massively increasing due to the COVID19 crisis) share of households who cannot afford to heat (or cool) their home sufficiently. The health consequences can go until winter extra deaths as observed in the UK for example. In that case, it is not a matter of “comfort”. It is a matter to provide the sufficient sanitary conditions for inhabitants.
I stop here, but there could be many more arguments to oppose the provocative title of this article.
My main comment is that if you are really thinking that an energy transition is needed to mitigate climate change, you are shooting on the wrong target.
Reducing energy demand and developing the use of Renewable Energy Sources are both needed, if we want to keep conditions making possible a healthy life for everyone. This is demonstrated by the long term scenarios of the International Energy Agency and many research studies.
By creating a fake competition between energy efficiency and “clean” energy, you only play the game of fossil fuel companies…
Dominik Lenné says
It is true, that heat insulation of existing buildings is quite expensive in terms of co2 emissions avoidance cost (See e.g. my personal rough calculation linked below.). But CO2 avoidance by heat pump isn’t particularly cheap either and the insulation cost depends very much on the specifics: with refurbishing costs below 250 €/m² (in my rough example), insulation will outsave heat pump in the long term. So things have to be calculated carefully for the specific case.
Then there is another aspect: landscape consumption. For the US, this is a non-issue, but in EU, we run already now against resistance, sometimes hefty, against more landscape consumption by windmills, and with large PV utility scale power plants, something similar may happen. In DE we currently cover 50 % of electric power by renewables. After full decarbonization, we will have double the electric power installed, which means we’ll have to quadruple renewables generation – with the correspondent landscape consumption.
If we could cut on electric power by heat insulation, even if somewhat more expensive, it would take a lot of pressure from our landscape.
https://docs.google.com/spreadsheets/d/1mEY7_lfdk0IV5_x3TjFN-y8xJtsapHBpFaxGC-vEYAQ/edit?usp=sharing
Luke says
Maybe one should not forget, that the grid would collapse if everyone would heat uninsulated homes with electricity.
Improving the grid would also cost a lot and faces often opposition.
So I would be really interested in how you plan to solve that problem…
JOHN ASHCROFT says
Double the insulation and halve the heat loss, double again and halve again but you have used twice the insulation and got back half the benefit.
Insulation is much cheaper than it was in the past so we can afford to use more.
But retrofitting is often very expensive.
You also get a big reduction from using a heat pump.
There is going to be an optimal economic balance here but it will depend heavily on each building, each project.
The best way to do this is to increase the cost of energy in proportion to the CO2 it produces, and the increases may well need to be quite dramatic.
Individuals and the market will likely find the optimal solutions; that’s what it does.