Should we be aiming the money hose at retrofits?
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.
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 labor 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 randomized 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.
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.
My house was built in 1946. It’s a typical California Rancher. 1500 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 vapor 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 weatherization 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.
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 neighborhood. 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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Suggested citation: Auffhammer, Maximilian. “Retrofit This” Energy Institute Blog, UC Berkeley, April 19, 2021, https://energyathaas.wordpress.com/2021/04/19/retrofit-this/
Maximilian Auffhammer is the George Pardee Professor of International Sustainable Development at the University of California Berkeley. His fields of expertise are environmental and energy economics, with a specific focus on the impacts and regulation of climate change and air pollution.