If I got a dollar each time someone says that California’s energy efficiency codes have led to significant decreases in electricity consumption, I could buy a Tesla to help reverse that trend. In the halls of power, climate regulators discuss this source of energy savings potential with a level of excitement rivaling that surrounding the appearance of Harrison Ford as Han Solo in the new Star Wars trailer. New building codes are a significant part of projected emissions reduction goals in the US, Europe, Japan and elsewhere. The question of course is, whether building codes actually cause such decreases in energy consumption.
Figuring out the realized magnitude of energy savings from building codes is tricky. You cannot just compare the energy consumption of buildings built today (post building code) to those built prior to the imposition of building codes for at least three reasons:
- Today’s homes are much bigger and we are increasingly building new homes in hotter parts of the state/country.
- People who use a lot of energy consuming services (e.g., cooling) might self select into more efficient newer homes.
- The imposition of a building code is not random, but a policy choice. Areas with extreme seasons and a greener populace are more likely to adopt such regulations.
There are a number of papers that have tried to overcome some of these barriers. Yours truly tried to overcome the problem of policy endogeneity (problem 3 above) in a cross-state and -time comparison and found savings of about 2-5%. Kotchen and Jacobsen in a nice experiment compare new buildings pre and post a building code in Gainesville, Florida and find savings of a similar magnitude. These savings are significantly smaller that ex ante engineering estimates, yet still economically and statistically significant.
A recent NBER working paper by Arik Levinson, who recently worked for the White House Council of Economic Advisors, argues that there is no evidence that California’s building codes have led to a reduction in electricity consumption after you address the three issues above. This paper struck a nerve with my friends in Sacramento and was featured on the Freakonomics podcast. So what does it do?
Using data from two rounds of California’s Residential Appliance Saturation Survey for about 16,000 homes matched to detailed electricity billing data, he estimates regressions, which account for detailed characteristics of the homes and occupants and the climate zones they are in. The key variables of interest are indicators of year built for each housing unit. He finds no statistically significant evidence that buildings of younger vintages use less electricity than older buildings – with the exception of the most recently constructed buildings.
Levinson then questions this finding for the most recent years. What if buildings become leaky after just a few years? Or maybe new homeowners have no money to spend on electricity and conserve energy right after purchasing a new home. As time goes by and budgets become less tight, they just might turn on the AC more frequently. Figure 3 in the paper makes exactly this point.
What you see here is electricity consumption against building age by construction decade. The fact that the leftmost line segments slope upward most steeply suggests that newly built houses within a construction cohort do consume less electricity. Levinson argues that this is in fact evidence in favor of the point that buildings deteriorate quickly after being built and/or residents turn up the heat/AC once they have more cash.
The paper also shows convincing evidence that buildings built under different building code regimes do not have statistically different temperature response profiles. He digs into national survey data and shows further evidence in support of his findings based on California data.
If you stop reading and thinking here, you might walk away with the idea that building codes are useless and we should spend our money on more worthwhile causes like desalinization (don’t get me started on that bright idea). Don’t walk. One more paragraph. You can do it.
The paper recognizes up front that owners of older homes might spend money on insulation, new windows and better sealing to make their homes more efficient. This would of course make the older pre-code homes more like post-code homes and increase the likelihood of a no effect finding. Does this happen? A three thousand dollar rebate check on its way in the mail to me from Sacramento for my newly sealed 1947 built home is evidence that this happens. Even my politically conservative neighbors have been spotted with the insulation truck outside their 1948 home.
Second, we will never observe the true counterfactual home that would have been built instead of the building code compliant home that was eventually built. Even the most careful econometrician does not observe all relevant characteristics that change over time.
Third, building codes provide many benefits that are not measured in kilowatt-hours, but in comfort. Visit your strange friends living in a house with single pane glass and sit near the window on a cool night.
Finally, much of the benefit from building codes comes from lower natural gas consumption for heating. The paper does not study this dimension in great depth.
Arik, who is an incredibly careful and thoughtful economist, is careful in discussing all of this in his paper, but he still comes to the conclusion that building codes do not result in savings that should be counted as additional under new climate and energy regulation. The main argument there relates to the fact that if people in older homes voluntarily improve the efficiency in their homes, then building codes simply build this into the up front cost of a new home. This makes the new building code essentially a choice that people would make in the absence of the policy eventually and is hence not additional. There is some economic truth to this argument.
In order to settle this, I am afraid, we would need to run one really expensive RCT, where some identical homes are built according to building codes and others are not. We would then have to have random people assigned across these homes and live their very real lives in these homes. If you are a developer, give me a call. I am standing by having a hot cup of tea in my now comfortable, no-longer-leaky California home.